Reference no: EM13890505

Sunny Day Nursing Home relies heavily on cost data to keep its pricing structures in line with those of its competitors. The facility provides a wide range of services, including assisted living and skilled nursing. The facilities' controller is concerned about the profits generated by the 30-bed memory unit, so she is reviewing current billing procedures for that unit. The focus of her analysis is the unit's billing per patient day. This billing equals the per diem cost of the memory unit plus a 40 percent markup to cover other operating costs and generate a profit. Memory unit patient costs include the following:

Memory aids                                  $30 per patient day (average)

Doctors' care                                  1 hour per day @ $200 per hour (actual) Memory therapy care                3 hours per day @ $90 per hour (actual) Regular nursing care              24 hours per day @ $30 per hour (average) Medications                                                        $250 per day (average)

Daily living supplies                     $80 per day (average)

Room rental                                   $400 per day (average)

Food services                                 $50 per day (average)

The nursing home director has asked the controller to compare the current billing procedure with one that uses industry averages to determine the billing per patient day.

Required:

1. Compute the cost per patient per day.

2. Compute the billing per patient day using the memory unit's existing markup rate.

3. Compute the billing per patient day using the following industry averages for markup rates:

4. Based on your findings in requirements 2 and 3, which billing procedure would you recommend? Why?