1. Compute the 2011 volume of activity in patient-days. 2. Compute the 2011 patient-days that would have...
Question:
1. Compute the 2011 volume of activity in patient-days.
2. Compute the 2011 patient-days that would have been necessary for the obstetrics department to recoup all fixed expenses except nursing expenses.
3. Compute the 2011 patient-days that would have been necessary for the obstetrics department to break even, including nurses’ salaries as a fixed cost.
4. Suppose Obstetrics must pay $200 per patient-day for nursing services. This plan would replace the two-level fixed-cost system employed in 2011. Compute what the break-even point in patient days would have been in 2011 under this plan.
The Metropolitan City Hospital is unionized. In 2011, nurses received an average annual salary of $45,000. The hospital administrator is considering how the contract with nurses should be changed for 2012. In turn, the current practice of charging nursing costs to each department might also be changed.
Each department is accountable for its financial performance. Revenues and expenses are allocated to departments. Consider the expenses of the obstetrics department in 2011:
Variable expenses (based on 2011 patient-days) are
Meals ............................................ $510,000
Laundry ........................................ 260,000
Laboratory ................................... 900,000
Pharmacy ..................................... 800,000
Maintenance ................................ 150,000
Other ............................................ 530,000
Total .......................................... $3,150,000
Fixed expenses (based on number of beds) are
Rent ................................................................. $3,000,000
General administrative services .................. 2,100,000
Janitorial ......................................................... 200,000
Maintenance .................................................. 150,000
Other .............................................................. 450,000
Total ............................................................... $5,900,000
Nurses are assigned to departments on the basis of annual patient-days, as follows:
Volume Level Patient-Days Number of Nurses
10,000 – 12,000 ............................ 30
12,001 – 16,000 ............................ 35
Total patient-days are the number of patients multiplied by the number of days they are hospitalized. Each department is charged for the salaries of the nurses assigned to it.
During 2011 the obstetrics department had a capacity of 60 beds, billed insurance and government agencies an average of $800 per day for each patient, and had revenues of $12 million.
Step by Step Answer:
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu