Reference no: EM132517945
Azorean Hospital operates a general hospital but rents space to separately owned entities rendering specialized services such as pediatrics and psychiatry. Azorean charges each separate entity for patients' services (meals and laundry) and for administrative services (billings and collections). Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Azorean charged the following costs to Pediatrics for the year ended June 30, 2019:
Patient Services Variable Bed Capacity
Fixed
Dietary $ 600,000
Janitorial $70,000
Laundry 300,000
Laboratory 450,000
Pharmacy 350,000
Repairs and Maintenance 30,000
General and Administrative 1,300,000
Rent 1,500,000
Billings and Collections 300,000
Total $2,000,000
$2,900,000
In addition to these charges from Azorean Hospital, Pediatrics incurred the following personnel costs:
Annual Salaries*____
Supervising nurses ................................... $100,000
Nurses .......................................................... 200,000
Assistants..................................................... 180,000
Total ............................................................. $480,000
*These salaries are fixed within the ranges of annual patient-days considered in this problem.
- During the year ended June 30, 2019, Pediatrics charged each patient $300 per day, had a capacity of 60 beds, and had revenues of $6,000,000 for 365 days. Pediatrics operated at 100 percent capacity on 90 days during this period. It is estimated that during these 90 days, the demand exceeded 80 beds. Azorean has 20 additional beds available for rent for the year ending June 30, 2020. This additional rental would proportionately increase Pediatrics' annual fixed charges based on bed capacity.
Required:
Question a) Calculate the minimum number of patient-days required for Pediatrics to break even for the year ending June 30, 2020, if the additional beds are not rented. Patient demand is unknown, but assumes that revenue per patient-day, cost per patient-day, cost per bed, and salary rates for the year ending June 30, 2020, remain the same as for the year ended June 30, 2019.
Question b) Assume Pediatrics rents the extra 20-bed capacity from Azorean. Determine the net increase or decrease in earnings by preparing a schedule of increases in revenues and costs for the year ending June 30, 2020. Assume that patient demand, revenue per patient-day, cost per patient-day, cost per bed, and salary rates remain the same as for the year ended June 30, 2019.