Question

Susquehanna Medical Center operates a general hospital in northeastern Pennsylvania. The medical center also rents space and beds to separately owned entities rendering specialized services, such as Pediatrics and Psychiatric Care. Susquehanna charges each separate entity for common services, such as patients’ meals and laundry, and for administrative services, such as billings and collections. Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Susquehanna Medical Center charged the following costs to Pediatrics for the year ended June 30, 20x5:


During the year ended June 30, 20x5, Pediatrics charged each patient an average of $ 360 per day, had a capacity of 60 beds, and had revenue of $ 7.2 million for 365 days. In addition, Pediatrics directly employed personnel with the following annual salary costs per employee: supervising nurses, $ 30,000; nurses, $ 24,000; and aides, $ 10,800. Susquehanna Medical Center has the following minimum departmental personnel requirements, based on total annual budgeted patient days:
Pediatrics always employs only the minimum number of required personnel. Salaries of supervising nurses, nurses, and aides are therefore fixed within ranges of annual patient days. Pediatrics operated at 100 percent capacity on 90 days during the year ended June 30, 20x5. Administrators estimate that on these 90 days, Pediatrics could have filled another 20 beds above capacity. Susquehanna Medical Center has an additional 20 beds available for rent for the year ending June 30, 20x6. Such additional rental would increase Pediatrics’ fixed charges based on bed capacity. (In the following requirements, ignore income taxes.)


Required:
1. Calculate the minimum number of patient days required for Pediatrics to break even for the year ending June 30, 20x6, if the additional 20 beds are not rented. Patient demand is unknown, but assume that revenue per patient day, cost per patient day, cost per bed, and salary rates will remain the same as for the year ended June 30, 20x5.
2. Assume that patient demand, revenue per patient day, cost per patient day, cost per bed, and salary rates for the year ending June 30, 20x6, remain the same as for the year ended June 30, 20x5. Prepare a schedule of Pediatrics’ increase in revenue and increase in costs for the year ending June 30, 20x6. Determine the net increase or decrease in Pediatrics’ earnings from the additional 20 beds if Pediatrics rents this extra capacity from Susquehanna Medical Center.
(CPA,adapted)


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  • CreatedApril 22, 2014
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