Compute the cost allocated to cost centers, Financial Accounting

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1.      Allocation of Indirect Cost

Radiology Department in long Island Jewish Hospital incurred $1,267,000 of total indirect cost in five procedures (CC#557: Diagnostic Radiology, CC#558: Ultrasound, CC#559: Nuclear Medicine, CC#560: CT Scan, CC#561: Radiation Therapy) by the end of September, 2011. Radiology Department in Long Island Jewish Hospital has 4 indirect cost centers, Transporters ($550,000), Receptionists ($360,000), File Room Clerks ($117,000), and Mangers ($240,000).

Indirect Cost Centers

Total Indirect Costs

Allocation Basis

CC#557: Diagnostic Radiology

 CC# 558: Ultrasound

CC# 559: Nuclear Medicine

CC#560: CT Scan

CC#561: Radiation Therapy

Total

Transporters

$550,000

A

 

 

 

 

 

$550,000

Receptionists

360,000

C

 

 

 

 

 

360,000

File Room Clerks

117,000

B

 

 

 

 

 

117,000

Managers

240,000

A

 

 

 

 

 

240,000

Totals

$1,267,000

 

 

 

 

 

 

$1,267,000

Question:

Compute the cost allocated to cost centers, CC#557: Diagnostic Radiology, CC#558: Ultrasound, CC#559: Nuclear Medicine, CC#560: CT Scan, CC#561: Radiation Therapy using the allocation bases shown below. The new allocation bases are:

Allocation Basis

CC#557: Diagnostic Radiology

 CC# 558: Ultrasound

CC# 559: Nuclear Medicine

CC#560: CT Scan

CC#561: Radiation Therapy

Total

A: Volumes

120,000

130,000

70,000

110,000

70,000

500,000

B: Direct Cost

$1,100,000

$700,000

$1,300,000

$1,600,000

$1,300,000

$6,000,000

C: No. of films

400,000

20,000

55,000

25,000

20,000

520,000

2.      You are considering starting a walk-in-clinic. Your financial projections for the first year of operations are as follows:

Revenues(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

Assume that all costs are fixed except supply costs, which are variable.  Furthermore, assume that clinic must pay taxes at 30 % rate.

Questions:

1)      Construct the clinic's projected P&L statement

2)      What number of visits is required to break even??

3)      What number of visits is required to provide you with an after-tax-profit of $100,000?? 

3.      The Rubenstein Blood Bank has variable costs of $10 per pint of blood obtained and annual fixed costs are $300,000.  Its charges an average of $70 for each pint of the blood delivered to a member organization for use.  How many pint must it process each year to break even??

4.      Carroll Clinic's 2011 operating budget is follows:

I.                   Volume (# of visits)

Payer A                       9,000

Payer B                      12,000

                                   21,000 

II.                Reimbursement(per visits)

Payer A                       $ 100

Payer B                       $   90

III.                                     Costs

Variable Costs:

Supplies                      $   315,000

Fixed Costs:

Labor                         $ 1,035,000

Overhead                   $    500,000

                                  $ 1,535,000

IV.             Forecasted P&L Statement

Revenues:

Payer A                    $   900,000

Payer B                    $ 1,080,000

      Total Revenues  $ 1,980,000

Variable costs          $    315,000

Fixed costs              $  1,535,000

      Total Costs        $  1,850,000

Profit                       $      130,000

Assume the actual results of 2011 Carroll Clinic were reported below:

I.                   Volume (# of visits)

Payer A                      11,000

Payer B                      12,000

                                   23,000 

II.                Reimbursement(per visits)

Payer A                       $   95

Payer B                       $   95

III.                                      Costs

Variable Costs:

Supplies                      $   350,000

Fixed Costs:

Labor                         $ 1,000,000

Overhead                   $    500,000

                                  $ 1,500,000

IV.  Forecasted P&L Statement

Revenues:

Payer A                    $ 1,045,000

Payer B                    $ 1,140,000

      Total Revenues  $ 2,185,000

Variable costs          $    350,000

Fixed costs              $  1,500,000

      Total Costs        $  1,850,000

Profit                       $      335,000

Questions:

1)      What are the profit, revenue, and cost variances based on the simple budget??

2)      Construct Carroll's flexible budget for 2011??

3)      What are the profit, revenue, and cost variance based on the flexible budget??

4)      Interpret  your results.

5.      Sacramento memorial Hospital has the following financial data and operational metrics:

# of beds

250

Total inpatient admissions

12,250

Total outpatient visits

90,754

Total Patient revenues

$111,900,050

Outpatient mix

16.2%

Medicare payment %(revenues)

28.0%

Average length of stay

5.8days

Net price per discharge

$7,653

Cost per discharge

$6,292

Questions:

1)      What is the hospital's profit per discharge?

2)      What is the hospital's total inpatient and total outpatient revenue??(Hint: Apply patient mix metrics to total revenues.)

3)      What are the hospital's total revenues from Medicare patients??

4)      What is the total # of inpatient days??

5)      What is the hospital's occupancy rate??

Extra Credits

6. Seattle health Plans currently uses zero debt financing.  Its operating profit is $1million, and it pays taxes at a 40% rate.  It has $5million in assets and because it is all-equity financed, $5 million in equity.  Suppose the firm is considering replacing half of its equity financing with debt financing that bears an interest rate of 8%.

Questions:

1)      What impact would the new capital structure have on the firm's profit, total dollar return to investors, and return on equity??

2)      Repeat the analysis required for question 1), but now assume that Seattle health Plan is a non-profit corporation and hence pay no taxes.  Compare the results with those obtained in question 1).

7.      Morningside Nursing Home, a non-profit organization, is estimating its corporate cost of capital.  Its tax-exempt debt currently required an interest rate of 6.2% and its target capital structure calls for 60% debt financing and 40% equity (fund capital) financing.  Its estimated cost of equity is 16.4%.  What is Morningside's corporate cost of capital??


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