Medical Center Hospital CEO Thomas Cleverly decided that the not-for-profit hospital needed a new revenue line to help it compete with other hospitals in the area. He envisioned a mobile medical clinic, called “Health Train,” which could travel to different neighborhoods and provide annual physical examinations for a low price.

You are an MHA fellow who is assigned to the CEO’s office, and the task of doing the initial planning for this project has fallen on your shoulders. You have been able to gather the following information on the Health Train concept:

An appropriate-sized bus can be purchased for $300,000; it would have a ten-year life and a 10 percent salvage value.

Equipment for the bus would cost $100,000; it would have a five-year life with no salvage value.

A physician to staff the Health Train would require $200,000 per year in salary and benefits. The physician could see one patient every 30 minutes and work 1,400 hours per year.

A nurse to assist the physician would cost $60,000 per year in salary and benefits. The nurse also could see one patient every 30 minutes and work 1,400 hours per year. The nurse would weigh patients, check blood pressure, take blood samples, administer electrocardiograms, and perform other tasks as needed.

A clerical assistant to handle registration and billing would cost $30,000 per year in salary and benefits.

Medical supplies for the physicals would run $5 per patient.

Laboratory tests for the physicals would run $20 per patient.

Insurance, advertising, fuel, repairs, and other expenses are estimated at $180,000 per year.

Cleverly insists that the Health Train contribute a minimum of $20,000 per year of profit.

1. Develop a cost-based price for a single physical exam in the Health Train.

2. Assume that the “target cost” is the average cost of a physical exam in local physician offices, which is $200. Does the initial plan meet the target cost?

3. If the initial plan does not meet the target cost, what elements could be redesigned to help meet this target?

4. What other factors might affect the decision to proceed with the Health Train?

Answer rating: 100% (QA)

1 Fixed Cost CalculationPer year in Dollars Bus Cost 27000 Equipment Cost 20000 Physician Salary 200... View the full answer