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St. Elsewhere Hospital has three support departments and three patient services departments. The direct costs to each of the support departments are as follows:

General Administration                      $12,000,000

Maintenance and Housekeeping         25,000,000

Human Resources                                4,500,000

 

 

Use the following data in this question:

Department	Patient Service Revenue	Space (in square footage)	Number of Employees
Support:
General Administration		5,000	20
Maintenance and Housekeeping		6,000	100
Human Resources		2,000	8
Total		13,000	128
Patient Services:
Primary Care	$80,000,000	400,000	500
Intensive Care	70,000,000	100,000	250
Elder Care	40,000,000	50,000	400
Total	$190,000,000	550,000	1,150
Grand Total	$190,000,000	563,000	1,278

 

 

(3) Now assume that St. Elsewhere uses the step-down method of cost allocation. Assume that General Administration provides the most services to the other support departments, followed by maintenance and housekeeping, and then human resources

A) The allocation rate for General Administration is $   

B) The allocation rate for Maintenance & Housekeeping is $   

C) The allocation rate for Human Resources is $   

 

(4) Allocate the support costs to the patient service departments.

(A) Amount Allocated from General Administration to Primary Care is $   

(B) Amount Allocated from General Administration to Intensive Care is $   

(C) Amount Allocated from General Administration to Elder Care is $   

(D) Amount Allocated from Maintenance & Housekeeping to Primary Care is $   

(E) Amount Allocated from Maintenance & Housekeeping to Intensive Care is $   

(F) Amount Allocated from Maintenance & Housekeeping to Elder Care is $   

(G) Amount Allocated from Human Resources to Primary Care is $   

(H) Amount Allocated from Human Resources to Intensive Care is $   

(I) Amount Allocated from Human Resources to Elder Care is $   

 

 Q2

St. Elsewhere is considering opening an outpatient clinic for patients who have minor injuries or illnesses. The clinic will be open 24 hours a day, 7 days per week; the hospital expects 20,000 patient visits in the first year. The financial projections for year 1 of operations are below:

Average Revenue per Patient	$200 per patient
Wages and Benefits	$1 million
Average Medical Supplies Used per Patient	$30 per patient
Interest	$300,000
Depreciation	$200,000
Utilities	$30,000 per month
Miscellaneous	$200,000

 

(A) What is the breakeven volume required for the project? $   

(B) What is the required volume for the project to generate an estimated $250,000 profit? $   

(C) What is the maximum the project can spend on medical supplies per patient to breakeven (profit = $0), assuming 20,000 visits? $   

Question 3

St. Elsewhere Hospital has net patient service revenues of $160 million. Assume that it has three major third-party payers – Medicare, Medicaid, and Private Insurance Company (PIC). The paying behavior of these payers on average is displayed below.

Payer	% Total Revenue	Average Days to Payment
Medicare	50	65
Medicaid	20	80
PIC	30	36

 

(A) What is St. Elsewhere’s average collection period, assuming 365 days in a year? $   

(B) What is the hospital’s current receivable balance? $   

(C) Assume the hospital cost of carrying receivables is 5%. If a new billing and collection system could reduce PIC’s average days by 5 days and cost $50,000, should the hospital invest in it?

1. Yes

2. No

Question 4

St. Elsewhere buys $30 million in medical supplies from Knight Rider Industries (KRI). KRI offers St. Elsewhere terms of 3/10, net 50. Currently the hospital is paying KRI on day 10. Assume 365 days in a year.

(A) What is the total trade credit available from KRI? $   

(B) What is the amount of the costly trade credit? $   

(C) Should the hospital continue to pay on day 10, or take the costly credit? Assume the hospital can get a bank loan at 9 percent.

1. Yes, keep paying on day 10

2. No, replace with costly credit

  [Write the number corresponding to the correct option e.g. 1 or 2]

 

Question 5

The psychiatry department at St. Elsewhere Hospital offers four medical services to patients, and annual cost and utilization data are:

Service	VC per Service	Direct Fixed Costs	Activity Level
Therapy	$12	$400,000	4,000
In-Patient	450	2,000,000	2,000
Pharmacy	35	4,000,000	10,000
Examination	110	5,000,000	4,000

 

(A) What should St. Elsewhere set as the prices for each of these four services, if the hospital uses marginal cost pricing?

Therapy $   

In-Patient $   

Pharmacy $   

Examination $   

 

(B) What should St. Elsewhere set as the prices for each of these four services, if the hospital wants to cover direct costs?

Therapy $   

In-Patient $   

Pharmacy $   

Examination $   

 

(C) Suppose St. Elsewhere would like to generate $100,000 of profit from the psychiatry department. What prices should the hospital use now, assuming that target profit is allocated to services based on activity level?

Therapy $   

In-Patient $   

Pharmacy $   

Examination $   

 

(D) What should the St. Elsewhere set as the prices for each of these fours services if management wants psychiatry to absorb $350,000 over overhead costs, also allocated based on activity level?

Therapy $   

In-Patient $   

Pharmacy $   

Examination $   

 

Question 6

Happy Hospital has the following financial statements:

Happy Hospital
Statement of Financial Position
As of December 31, 2018
Assets
Current Assets
Cash and Cash Equivalents	$      105,331
Patients Receivable, Net of Allowances for Uncollectibles	10,411,170
Inventory	498,100
Prepaid Expenses and Other Assets	971,917
Total Current Assets	11,986,518
Assets Limited as to Use	52,233,340
Investments	1,464,780
Property and Equipment, Net	16,886,005
Prepaid Pension Asset	1,298,170
Total Assets	$ 83,868,813
Liabilities and Net Assets
Current Liabilities
Accounts Payable and Accrued Expenses	$   1,586,144
Accrued Compensation and Amounts Withheld	2,491,736
Current Portion of Estimated Third-Party Settlements	1,400,000
Total Current Liabilities	5,477,880
Estimated Third-Party Settlements, Less Current Portion	3,530,000
Total Liabilities	9,007,880
Net Assets
Without Donor Restrictions	73,967,293
With Donor Restrictions	893,640
Total Net Assets	74,860,933
Total Liabilities and Net Assets	$ 83,868,813

 

 

 

Happy Hospital
Operating Statement
For the Year Ending December 31, 2018
Revenues without Donor Restrictions
Net Patient Service Revenue	$48,659,436
Other Operating Revenue	3,136,716
Total Operating Revenues	51,796,152
Expenses
Wages	45,076,683
Insurance	1,024,889
Inventory	1,053,367
Depreciation	2,421,597
Provision for Uncollectible Accounts	2,237,701
Total Expenses	51,814,237
(Loss) from Operations Before Adjustments	(18,085)
Pension Expense in Excess of Plan Contribution	(451,432)
Adjustments to Prior Year Third-Party Payer Settlements	1,360,937
Operating (Loss) Income	891,420
Nonoperating Gains
Investment Income	96,280
Unrestricted Gifts and Bequests	334,067
Other Miscellaneous Income	12,300
Nonoperating Gains	442,647
Excess of Revnues and Gains Over Expenses	1,334,067
Changes in Net Unrealized Gain on Investments	6,431,704
Increases in Net Assets without Donor Restrictions	$7,765,771

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Using the information given above, calculate the following ratios:

[Round your numbers to TWO decimal places]

(A) Return on Equity:   %

(B) Total Margin:   %

(C) Total Asset Turnover:   

(D) Equity Multiplier: