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).
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Indirect Cost Centers
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Total Indirect Costs
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Allocation Basis
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CC#557: Diagnostic Radiology
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CC# 558: Ultrasound
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CC# 559: Nuclear Medicine
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CC#560: CT Scan
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CC#561: Radiation Therapy
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Total
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Transporters
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$550,000
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A
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$550,000
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Receptionists
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360,000
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C
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360,000
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File Room Clerks
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117,000
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B
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117,000
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Managers
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240,000
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A
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240,000
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Totals
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$1,267,000
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$1,267,000
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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:
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Allocation Basis
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CC#557: Diagnostic Radiology
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CC# 558: Ultrasound
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CC# 559: Nuclear Medicine
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CC#560: CT Scan
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CC#561: Radiation Therapy
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Total
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A: Volumes
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120,000
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130,000
|
70,000
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110,000
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70,000
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500,000
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B: Direct Cost
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$1,100,000
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$700,000
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$1,300,000
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$1,600,000
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$1,300,000
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$6,000,000
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C: No. of films
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400,000
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20,000
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55,000
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25,000
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20,000
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520,000
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2. You are considering starting a walk-in-clinic. Your financial projections for the first year of operations are as follows:
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Revenues(10,000 visits)
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$400,000
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Wages and benefits
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220,000
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Rent
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5,000
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Depreciation
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30,000
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Utilities
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2,500
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Medical supplies
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50,000
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Administrative supplies
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10,000
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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:
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# of beds
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250
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Total inpatient admissions
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12,250
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Total outpatient visits
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90,754
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Total Patient revenues
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$111,900,050
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Outpatient mix
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16.2%
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Medicare payment %(revenues)
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28.0%
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Average length of stay
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5.8days
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Net price per discharge
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$7,653
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Cost per discharge
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$6,292
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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??