Melford Hospital operates a general hospital but rents space to separately owned entities rendering specialized services such as pediatrics and psychiatry. Melford charges each separate entity for patients’ services (meals and laundry) and for administrative services (billings and collections). Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Melford charged the following costs to Pediatrics this year: Patient Services Bed Capacity (Variable) (Fixed) Dietary $1,280,000 Janitorial $152,000 Laundry 600,000 Laboratory 960,000 Pharmacy 736,000 Repairs and maintenance 64,000 General and administrative 2,800,000 Rent 3,200,000 Billings and collections 640,000 Total $4,216,000 $6,216,000 In addition to these charges from Melford Hospital, Pediatrics incurred the following personnel costs: Annual Salaries* Supervising nurses $216,000 Nurses 432,000 Assistants 384,000 Total $1,032,000 * These salaries are fixed within the ranges of annual patient-days considered in this problem. During the year, Pediatrics charged each patient $400 per day, had a capacity of 128 beds, and had revenues of $12,800,000 for 365 days. Pediatrics operated at 100% capacity on 90 days during this period. It is estimated that during these 90 days, the demand exceeded 160 beds. Melford will have 32 additional beds available for rent next year. If Pediatrics rents the beds from Melford, the additional rental would proportionately increase Pediatrics’ annual fixed charges that are based on bed capacity.

Required:

a. Calculate the minimum number of patient-days required for Pediatrics to break even next year, if the additional 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 next year will be consistent with the current year. Note: Round your answer up to the nearest whole unit (for example, round 41.2 to 42). Answer patient-days

b. Assume Pediatrics rents the extra 32 -bed capacity from Melford during the busy 90-day period. Determine the net increase or decrease in earnings by preparing a schedule of increases in revenues and costs for next year. Assume that patient demand, revenue per patient-day, cost per patient-day, cost per bed, and salary rates remain the same as the current year. Note: Do not use a negative sign with your answer.

Answer rating: 100% (QA)

a b a The break even point in patient days can be determined by dividing the ... View the full answer