Assume that a certain nursing home has two categories of payers. Medicaid pays $60.00 per day and private pay patients pay the established per diem, but approximately 10 percent of private pay charges are not collected. If 50 percent of the patients are Medicaid and 50 percent are private pay, what rate must be set to generate $150,000 in profit? Variable costs are $45.00 per day and fixed costs are expected to be $1,000,000. Expected volume is 50,000 patient days.

Profit = Sales - Variable Cost - Fixed Cost

Given that: Fixed Cost = $1,000,000

Variable Cost per day = $45

Per day Patient days = 50,000

Total variable cost = 50,000 x $45 = $2,250,000

Profit required = $150,000

Substituting values in the equation highlighted above: $150,000 = Sales - $2,250,000 - $1,000,000

Sales = $3,400,000

Now, it’s given that each category patients constitute 50% of total patients. Patient days for each category = 50,000 x 50% = 25,000

Patient days Total Sales from Medicaid patients = $60 x 25,000 = $1,500,000

Sales remaining from private pay patients = $3,400,000 - $1,500,000 = $1,900,000

Let the amount charged from private pay patients be S.

Therefore we have total sales from private pay patients as: S25, 000 = $1,900,000

S = $76 per patient day for private patient It has been provided that 10 % of private pay patients will not be collected.

The amount to be charged to cover this shortage = $76 x 100 / 0.90

$84.44 per patient

Required:

Using this data and assuming that the nursing home charges $100 per day, what would be the nursing home’s required volume (in patient days) in order to make $150,000 profit

Answer rating: 100% (QA)

Taking the above data for calculation where FCVC and in the question Profit is ... View the full answer