Finance

7.3 Allied Laboratories is combining some of its most common tests into one-price packages. One package will contain three tests that have the following variables costs:

Test A Test B Test C

---------------------------------------------------------------------------

Disposable syringe $3 $3 $3

Blood vial $0.50 $0.50 $0.50

Forms $0.15 $0.15 $0.15

Reagents $0.8 $0.6 $1.2

Sterile bandage $0.1 $0.1 $0.1

Breakage/Losses $0.05 $0.05 $0.05

When the tests are combined, only one syringe, form, and sterile bandage will be used. Furthermore, only one charge for breakage/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required).

A. As a starting point, what is the price of the combined test assuming marginal cost pricing?

B. Assume that allied wants a contribution margin of $10 per test. What price must be set to achieve this goal?

C. Allied estimates that 2000 of the combined tests will be conducted during the first year. The annual allocation of direct fixed and overhead costs total $40,000. What price must be set to cover full costs? When price must be set to produce a profit of $20,000 on the combined tests.

7.4 Assume that Valley Forge Hospital has only the following three payers groups:

Payer Num of Admissions Ave Revenue PA Variable Cost PA

PennCare 1,000 $5,000 $3,000

Medicare 4,000 $4,500 $4,000

Commercial 8,000 $7,000 $2,500

The Hospital's fixed costs are $38 million.

A. What is the hospital's net income?

B. Assume that half of the 100,000 covered lives in the commercial payer will be removed into capitated plan. All utilization and cost date remain the same. What PMPM rate will the hospital have to charge to retain its Part a net income?

C. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?

D. Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?