On January 1, 2007, Mr. DMB, CFO for the Warehouse Health System, purchased a new CT...

Transcribed Image Text:

On January 1, 2007, Mr. DMB, CFO for the Warehouse Health System, purchased a new CT scan for the radiology department after evaluating cost and quality of CT scans from five (5) vendors. The purchase price of the CT scan was $1 million dollars. The cost per procedure in technical and professional labor and supplies is $650 dollars. On February 1, 2007, one of the radiologist on staff informed Mr. DMB of a CT scan that would significantly decrease the cost per procedure to $325 per procedure. The purchase price for CT scan # 2 is $1.1 million dollars. 1) What should Mr. DMB, CFO do? Should he purchase CT Scan # 27 2) What additional informantion is needed to make a decision to purchase CT Scan # 2? 3) What could have been done to avoid this situation, if at all? 4) Utilize the speadsheet model to anaylze changes in cost per procedure, revenue changes, volume changes. 5) What suggestions would you provide Mr. DMB if a) he did purchase CT Scan # 2, b) if he did NOT purchase CT Scan # 27 Assume the volume is projected to cap at 5000 procedures. Janaury 1, 2007 CT Scan # 1 Initial Cost Volume: # of procedures cost per procedure Total Variable Cost Net Revenue per procedure Net Revenue Net profit without fixed cost Add Back Initial Cost Profit ($1,000,000) 5000 $650 $3,250,000 $1,000 $5,000,000 $1,750,000 ($1,000,000) $750,000 February 1, 2007 CT Scan # 2 ($1,100.000) 5000 $325 $1,625,000 $1,000 $5,000,000 $3,375,000 ($1,100,000) $2,275,000 On January 1, 2007, Mr. DMB, CFO for the Warehouse Health System, purchased a new CT scan for the radiology department after evaluating cost and quality of CT scans from five (5) vendors. The purchase price of the CT scan was $1 million dollars. The cost per procedure in technical and professional labor and supplies is $650 dollars. On February 1, 2007, one of the radiologist on staff informed Mr. DMB of a CT scan that would significantly decrease the cost per procedure to $325 per procedure. The purchase price for CT scan # 2 is $1.1 million dollars. 1) What should Mr. DMB, CFO do? Should he purchase CT Scan # 27 2) What additional informantion is needed to make a decision to purchase CT Scan # 2? 3) What could have been done to avoid this situation, if at all? 4) Utilize the speadsheet model to anaylze changes in cost per procedure, revenue changes, volume changes. 5) What suggestions would you provide Mr. DMB if a) he did purchase CT Scan # 2, b) if he did NOT purchase CT Scan # 27 Assume the volume is projected to cap at 5000 procedures. Janaury 1, 2007 CT Scan # 1 Initial Cost Volume: # of procedures cost per procedure Total Variable Cost Net Revenue per procedure Net Revenue Net profit without fixed cost Add Back Initial Cost Profit ($1,000,000) 5000 $650 $3,250,000 $1,000 $5,000,000 $1,750,000 ($1,000,000) $750,000 February 1, 2007 CT Scan # 2 ($1,100.000) 5000 $325 $1,625,000 $1,000 $5,000,000 $3,375,000 ($1,100,000) $2,275,000

Answer rating: 100% (QA)

1 To determine if Mr DMB should purchase CT Scan 2 CT Scan 1 Initial Cost 1000000 Cost per Procedure 650 CT Scan 2 Initial Cost 1100000 Cost per Procedure 325 Volume of procedures capped at 5000 Lets ... View the full answer