Finance HC

5.3 Assume that a radiologist group practice has the following cost structure:

Fixed costs $500,00

Variable cost per procedure $25

Charge (revenue) per procedure $100

Furthermore, assume that the group expects to perform 7,500 procedures in the coming year.

a. Construct the group’s base case projected P&L statement.

b. What is the group’s contribution margin? What is its breakeven point?

c. What volume is required to provide a pretax profit of $100,000? Aoretax profit of $200,000?

d. Sketch out a CVP analysis graph depicting the base case situation.

e. Now assume that the practice contracts with one HMO, and the plan proposes a 20 percent discount from charges. Redo questions a, b, c under these conditions.

5.6 Walk in data:

Revenue (10,000 visits) $400,000

Wages and benefits $220,000

Rent $5,000

Depreciation $30,000

Utilities $2,500

Medical supplies $50,000

Administrative supplies $10,000

Construct projected P&L statements at volume levels of 8000 ,9000, 10000, 11000, 12000 visits.

a. Assume that the base case forecast is 10000 visits. What is the clinic’s degree of operations leverage (DOL) at this volume level? Confirm the net incomes at the other volume levels using DOL combined with the percent changes in volume.

b. Now assume that the base case volume is 9000 visits. What is the DOL at this volume?

6.2 Assume that the three patient services departments are adult services revenue and hours of housekeeping services for each department are:

Department	Revenue	Housekeeping
Adult services	$3,000,000	1,500
Pediatric services	1,500,000	3,000
Other services	500,000	500
Total	$5,000,000	5,000

a. What is the dollar allocation to each patient service department if patient services revenue is used as the cost driver?

b. What is the dollar allocation to each patient services if hours of house keeping support are used as the cost driver?

c. What is the difference in the allocation to each department between the two drivers?

d. Which of the two divers is better? Why?

7.2 the audiology department at Randall Clinic offers many services to the clinic’s patients. The three most common, along with the cost and utilization data, are as follows:

Services	Variable cost per service	Annual direct fixed costs	Annual Number of Visits
Basic examination	5	50,000	3,000
Advanced examination	7	30,000	1,500
Therapy session	10	40,000	500

a. What is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs?

b. Assume that the audiology department is allocated $100,000 in total overhead by the clinic, and the department director has allocated $50,000 of this to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (to answer this question, assume that the allocation of overhead costs to each service is made on the basic of number of visits.)

c. Assume that these services must take a combined profit of $25,000. Now what is the fee schedual? (to answer this question, assume that the profit requirement is allocated in the same was as overhead costs.)