Please see attachment for questions. Thanks!

Key equations

• Basic break-even equation
• Price x volume=fixed cost + (variable cost per unit x volume)
• Contribution margin per unit
• Revenue per Unit-Variable Cost per Unit
• Total contribution margin
• Total revenue-total variable cost
• Shortcut to determine break-even volume
• Fixed costs/contributionmargin per unit
• Break-even equation modified to include desired profit
• Price x volume=fixed costs + (variable cost per unit x volume) + desired profit
• Break even equation modified to include indirect cost and desired profit
• Price x volume= direct cost +indirect costs + desired profit
• Where direct costs= direct fixed costs + (direct variable cost per unit x volume)
• Break-even equation for capitation
• PMPM x Enrollees= (Enrollees x utilization rate x variable cost per unit)
• + monthly fixed cost
• Product margin
• Total contribution margin-avoidable fixed costs

1. Definitions. Define the previously listed key terms.
2. Break-even formulas. What are the formulas for
3. The basic break-even equation?
4. The basic break-even equation expanded to include indirect costs and desired profit?
5. Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range.
6. Total fixed cost?
7. Total variable cost?
8. Fixed cost per unit?
9. Variable cost per unit?
11. Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range.
12. Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service?
13. Make-or-buy decision and related analyses.
14. What is a make-or-buy decision?
15. What other analyses are relevant to the types of decisions discussed in this chapter?
16. Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new ambulatory care center at hope university hospital. Fill in the missing information.

A

B

C

D

E

F

Price per visit

Variable cost per visit

Number of visits

Contribution margin

Fixed costs

Net income

$85

3,000

$220,000

$100,000

$70

$20

$250,000

$130,000

$35

3,250

$165,000

$85,000

$78

$55

2,500

$60,000

8)Calculating break-even volume. Jasmine Gonzales, administrative director of small imaging center, has been asked by the practice members to see if it feasible to add more staff to support the practices mammography service, which currently has two analogue film or screen units and two technologists. She has complied the following information:

Reimbursement per screen$75

Equipment costs per month$1,600

Technologist cost per mammography$20

Technologist aide per mammography$4

Variable cost per mammography$10

Equipment maintenance per month per machine$700

1. What is the monthly patient volume needed per month to cover fixed and variable costs?
2. What is the patient volume needed per month of small imaging center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization?
3. If reimbursement decreases to $55 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit?
4. If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover variable costs but not profit?

1. Determining charges for private pay residents. Shady rest nursing home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $170 per days, whereas private pay residents pay on average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is $90 for supplies, food, and contracted services, and annual fixed costs are $6,500,000.
2. What is the daily contribution margin of each non-private pay resident?
3. If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even?
4. What if non-private pay payors cover 50 percent of the residents?
5. The owner of shady Rest nursing home insists that the facility earn $1 million in annual profits. How much must the administration raise the per day charge for the privately insured residents if 25 percent of the residents are covered by a non-private pay payors?

Key equations Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) Contribution margin per unit Revenue per Unit-Variable Cost per Unit Total contribution margin Total revenue-total variable cost Shortcut to determine break-even volume Fixed costs/contribution margin per unit Break-even equation modified to include desired profit Price x volume=fixed costs + (variable cost per unit x volume) + desired profit Break -even equation modified to include indirect cost and desired profit Price x volume= direct cost +indirect costs + desired profit Where direct costs= direct fixed costs + (direct variable cost per unit x volume) Break-even equation for capitation PMPM x Enrollees= (Enrollees x utilization rate x variable cost per unit) + monthly fixed cost Product margin Total contribution margin-avoidable fixed costs 1) Definitions. Define the previously listed key terms. 2) Break-even formulas. What are the formulas for a) The basic break-even equation? b) The basic break-even equation expanded to include indirect costs and desired profit? 3) Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. a) Total fixed cost? b) Total variable cost? c) Fixed cost per unit? d) Variable cost per unit? 4) Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range. 5) Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service? 6) Make-or-buy decision and related analyses. a) What is a make-or-buy decision? b) What other analyses are relevant to the types of decisions discussed in this chapter? 7) Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new ambulatory care center at hope university hospital. Fill in the missing information. A Price per visit $85 $70 $78 B Variable cost per visit $20 $35 $55 C Number of visits 3,000 3,250 2,500 D Contribution margin $220,000 $250,000 E Fixed costs F Net income $100,000 $130,000 $165,000 $60,000 $85,000 8) Calculating break-even volume. Jasmine Gonzales, administrative director of small imaging center, has been asked by the practice members to see if it feasible to add more staff to support the practice's mammography service, which currently has two analogue film or screen units and two technologists. She has complied the following information: Reimbursement per screen $75 Equipment costs per month $1,600 Technologist cost per mammography $20 Technologist aide per mammography $4 Variable cost per mammography $10 Equipment maintenance per month per machine $700 a) What is the monthly patient volume needed per month to cover fixed and variable costs? b) What is the patient volume needed per month of small imaging center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? c) If reimbursement decreases to $55 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit? d) If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover variable costs but not profit? 9) Determining charges for private pay residents. Shady rest nursing home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $170 per days, whereas private pay residents pay on average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is $90 for supplies, food, and contracted services, and annual fixed costs are $6,500,000. a) What is the daily contribution margin of each non-private pay resident? b) If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even? c) What if non-private pay payors cover 50 percent of the residents? d) The owner of shady Rest nursing home insists that the facility earn $1 million in annual profits. How much must the administration raise the per day charge for the privately insured residents if 25 percent of the residents are covered by a non-private pay payors? Key equations Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) Contribution margin per unit Revenue per Unit-Variable Cost per Unit Total contribution margin Total revenue-total variable cost Shortcut to determine break-even volume Fixed costs/contribution margin per unit Break-even equation modified to include desired profit Price x volume=fixed costs + (variable cost per unit x volume) + desired profit Break -even equation modified to include indirect cost and desired profit Price x volume= direct cost +indirect costs + desired profit Where direct costs= direct fixed costs + (direct variable cost per unit x volume) Break-even equation for capitation PMPM x Enrollees= (Enrollees x utilization rate x variable cost per unit) + monthly fixed cost Product margin Total contribution margin-avoidable fixed costs 1) Definitions. Define the previously listed key terms. Answer: Break-even is a number of sales that is required to obtain no profit or no loss from the business. Contribution margin indicates the amount of profit generated from sales after meeting the variables costs. Contribution margin per unit indicates about the per unit profit generated from per unit sales after meeting per unit variable costs. Break-even with desired profit indicates the amount of revenue required to generate the expected profit. Profit margin is the amount of net profit generated from the sales. Break-even capitation indicates about the per month per month enrollees required to result in no profit or loss situation. 2) Break-even formulas. What are the formulas for a) The basic break-even equation? Answer: Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) b) The basic break-even equation expanded to include indirect costs and desired profit? Answer: Price x volume=fixed costs + (variable cost per unit x volume) + desired profit 3) Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. a) Total fixed cost? Answer: The fixed costs do not change with the increase in volume. Costs will stay the same within the relevant range. b) Total variable cost? Answer: Total variable costs increase with the volume. Variable costs will change with increase or decrease in the volume. c) Fixed cost per unit? Answer: Total fixed cost per unit will decrease with the increase in the volume. Fixed cost per unit and the volume are inversely related. d) Variable cost per unit? Answer: There will be no change in the variable cost per unit with an increase in the volume. Variable cost per unit will always remain at constant level. 4) Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range. Answer: Step fixed costs are those costs that do not change with the relevant rage of higher or lower threshold of the activity. But these costs changes when they are over or below the threshold level. Therefore, till the threshold level that is relevant range these costs are fixed, and beyond the threshold, they vary. 5) Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service? Answer: If the services related to the product create a negative margin, then it will be better to discontinue the service instead of providing the service. There should be a consideration of amount contributed by the service after covering the total variable costs and their related fixed costs before making a decision. If the contribution is lower and the avoidable fixed costs will boost the product margin, then the service should be dropped. 6) Make-or-buy decision and related analyses. a) What is a make-or-buy decision? Answer: Make or buy is a decision that is made by the company as for whether it would be profitable if the company is making the product or purchase from the outside. It is determined based on the detailed comparative analysis between make and buy, and company will make a decision based on the product margin. The one with higher product margin will be selected. b) What other analyses are relevant to the types of decisions discussed in this chapter? Answer: If any new service addition adds value to the decisions, then it should be added so that it will boost the product margin. Similarly, if a service will incur any additional costs to the company, then they should be eliminated. 7) Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new ambulatory care center at hope university hospital. Fill in the missing information. A Price per visit $85 $70 B Variable cost per visit $20 $35 $55 $78 C Number of visits 3,000 D Contribution margin $220,000 $250,000 3,250 2,500 E Fixed costs F Net income $100,000 $130,000 $165,000 $60,000 $85,000 Answer: Calculation A B C D E F Variable cost per visit Number of visits Contribution margin Fixed costs Net income 85 =((85*3000)220000)/3000 3000 220000 =220000100000 100000 70 20 250000 130000 =250000-130000 =(250000+(35*32 35 =165000+850 165000 85000 Price per visit =250000/(7020) 3250 50))/3250 78 55 A 00 = (7855)*2500 2500 B Variable cost per visit $11.66666 67 C Numb er of visits $70 60000 D E F Contributi on margin Fixed costs Net income 3,000 $220,000 120000 $100,0 00 $20 5000 $250,000 $111.9230 77 $35 3,250 250000 $78 $55 2,500 57500 Price per visit $85 $130,0 00 $165,0 00 $60,00 0 =57500-60000 120000 $85,00 0 -$2,500 8) Calculating break-even volume. Jasmine Gonzales, administrative director of small imaging center, has been asked by the practice members to see if it feasible to add more staff to support the practice's mammography service, which currently has two analogue film or screen units and two technologists. She has complied the following information: Reimbursement per screen $75 Equipment costs per month $1,600 Technologist cost per mammography $20 Technologist aide per mammography $4 Variable cost per mammography $10 Equipment maintenance per month per machine $700 a) What is the monthly patient volume needed per month to cover fixed and variable costs? Answer: Total variable costs = $20+$4+$10 = $34 Contribution per unit = $75-$34 = $41 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$41 = 56.0975 b) What is the patient volume needed per month of small imaging center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? Answer: Patient volume = (Fixed costs + Desired profit) / Contribution margin = ($1,600+$700+$5,000)/$41 = 178.0487 c) If reimbursement decreases to $55 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit? Answer: Contribution = $55-$34 = $21 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$21 = 109.524 d) If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover variable costs but not profit? Answer: Volume to cover variable cost = Revenue/Variable cost = $75/$34 = 2.2058 9) Determining charges for private pay residents. Shady rest nursing home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $170 per days, whereas private pay residents pay on average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is $90 for supplies, food, and contracted services, and annual fixed costs are $6,500,000. a) What is the daily contribution margin of each non-private pay resident? Answer: Contribution margin = Sales - Variable costs = $170-$90 = $80 b) If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even? Answer: Non-private pay = 140*25% = 35 $6,500,000 = (35*$80*365) + (105*(P-$90) * 365) ($6,500,000-$1,022,000)/(105*365) = P-$90 $142.94+$90 = Price Price = $232.94 c) What if non-private pay payors cover 50 percent of the residents? Answer: Non-private pay = 140*50% = 70 $6,500,000 = (70*$80*365) + (70*(P - $90) * 365) ($6,500,000 - $2,044,000)/(70*365) = P-$90 $116.27+$90 = Price Price = $206.27 d) The owner of shady Rest nursing home insists that the facility earn $1 million in annual profits. How much must the administration raise the per day charge for the privately insured residents if 25 percent of the residents are covered by a non-private pay payors? Answer: Non-private pay = 140*25% =35 $6,500,000+$1,000,000 = (35*$80*365) + (105*(P-$90) * 365) ($7,500,000-$1,022,000)/(105*365) = P-$90 $169.028+$90 = Price Price = $259.028 Key equations Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) Contribution margin per unit Revenue per Unit-Variable Cost per Unit Total contribution margin Total revenue-total variable cost Shortcut to determine break-even volume Fixed costs/contribution margin per unit Break-even equation modified to include desired profit Price x volume=fixed costs + (variable cost per unit x volume) + desired profit Break -even equation modified to include indirect cost and desired profit Price x volume= direct cost +indirect costs + desired profit Where direct costs= direct fixed costs + (direct variable cost per unit x volume) Break-even equation for capitation PMPM x Enrollees= (Enrollees x utilization rate x variable cost per unit) + monthly fixed cost Product margin Total contribution margin-avoidable fixed costs 1) Definitions. Define the previously listed key terms. Answer: Break-even is a number of sales that is required to obtain no profit or no loss from the business. Contribution margin indicates the amount of profit generated from sales after meeting the variables costs. Contribution margin per unit indicates about the per unit profit generated from per unit sales after meeting per unit variable costs. Break-even with desired profit indicates the amount of revenue required to generate the expected profit. Profit margin is the amount of net profit generated from the sales. Break-even capitation indicates about the per month per month enrollees required to result in no profit or loss situation. 2) Break-even formulas. What are the formulas for a) The basic break-even equation? Answer: Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) b) The basic break-even equation expanded to include indirect costs and desired profit? Answer: Price x volume=fixed costs + (variable cost per unit x volume) + desired profit 3) Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. a) Total fixed cost? Answer: The fixed costs do not change with the increase in volume. Costs will stay the same within the relevant range. b) Total variable cost? Answer: Total variable costs increase with the volume. Variable costs will change with increase or decrease in the volume. c) Fixed cost per unit? Answer: Total fixed cost per unit will decrease with the increase in the volume. Fixed cost per unit and the volume are inversely related. d) Variable cost per unit? Answer: There will be no change in the variable cost per unit with an increase in the volume. Variable cost per unit will always remain at constant level. 4) Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range. Answer: Step fixed costs are those costs that do not change with the relevant rage of higher or lower threshold of the activity. But these costs changes when they are over or below the threshold level. Therefore, till the threshold level that is relevant range these costs are fixed, and beyond the threshold, they vary. 5) Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service? Answer: If the services related to the product create a negative margin, then it will be better to discontinue the service instead of providing the service. There should be a consideration of amount contributed by the service after covering the total variable costs and their related fixed costs before making a decision. If the contribution is lower and the avoidable fixed costs will boost the product margin, then the service should be dropped. 6) Make-or-buy decision and related analyses. a) What is a make-or-buy decision? Answer: Make or buy is a decision that is made by the company as for whether it would be profitable if the company is making the product or purchase from the outside. It is determined based on the detailed comparative analysis between make and buy, and company will make a decision based on the product margin. The one with higher product margin will be selected. b) What other analyses are relevant to the types of decisions discussed in this chapter? Answer: If any new service addition adds value to the decisions, then it should be added so that it will boost the product margin. Similarly, if a service will incur any additional costs to the company, then they should be eliminated. 7) Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new ambulatory care center at hope university hospital. Fill in the missing information. A Price per visit $85 $70 B Variable cost per visit $20 $35 $55 $78 C Number of visits 3,000 D Contribution margin $220,000 $250,000 3,250 2,500 E Fixed costs F Net income $100,000 $130,000 $165,000 $60,000 $85,000 Answer: Calculation A B C D E F Variable cost per visit Number of visits Contribution margin Fixed costs Net income 85 =((85*3000)220000)/3000 3000 220000 =220000100000 100000 70 20 250000 130000 =250000-130000 =(250000+(35*32 35 =165000+850 165000 85000 Price per visit =250000/(7020) 3250 50))/3250 78 55 A 00 = (7855)*2500 2500 B Variable cost per visit $11.66666 67 C Numb er of visits $70 60000 D E F Contributi on margin Fixed costs Net income 3,000 $220,000 120000 $100,0 00 $20 5000 $250,000 $111.9230 77 $35 3,250 250000 $78 $55 2,500 57500 Price per visit $85 $130,0 00 $165,0 00 $60,00 0 =57500-60000 120000 $85,00 0 -$2,500 8) Calculating break-even volume. Jasmine Gonzales, administrative director of small imaging center, has been asked by the practice members to see if it feasible to add more staff to support the practice's mammography service, which currently has two analogue film or screen units and two technologists. She has complied the following information: Reimbursement per screen $75 Equipment costs per month $1,600 Technologist cost per mammography $20 Technologist aide per mammography $4 Variable cost per mammography $10 Equipment maintenance per month per machine $700 a) What is the monthly patient volume needed per month to cover fixed and variable costs? Answer: Total variable costs = $20+$4+$10 = $34 Contribution per unit = $75-$34 = $41 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$41 = 56.0975 b) What is the patient volume needed per month of small imaging center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? Answer: Patient volume = (Fixed costs + Desired profit) / Contribution margin = ($1,600+$700+$5,000)/$41 = 178.0487 c) If reimbursement decreases to $55 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit? Answer: Contribution = $55-$34 = $21 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$21 = 109.524 d) If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover variable costs but not profit? Answer: Volume to cover variable cost = Revenue/Variable cost = $75/$34 = 2.2058 9) Determining charges for private pay residents. Shady rest nursing home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $170 per days, whereas private pay residents pay on average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is $90 for supplies, food, and contracted services, and annual fixed costs are $6,500,000. a) What is the daily contribution margin of each non-private pay resident? Answer: Contribution margin = Sales - Variable costs = $170-$90 = $80 b) If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even? Answer: Non-private pay = 140*25% = 35 $6,500,000 = (35*$80*365) + (105*(P-$90) * 365) ($6,500,000-$1,022,000)/(105*365) = P-$90 $142.94+$90 = Price Price = $232.94 c) What if non-private pay payors cover 50 percent of the residents? Answer: Non-private pay = 140*50% = 70 $6,500,000 = (70*$80*365) + (70*(P - $90) * 365) ($6,500,000 - $2,044,000)/(70*365) = P-$90 $116.27+$90 = Price Price = $206.27 d) The owner of shady Rest nursing home insists that the facility earn $1 million in annual profits. How much must the administration raise the per day charge for the privately insured residents if 25 percent of the residents are covered by a non-private pay payors? Answer: Non-private pay = 140*25% =35 $6,500,000+$1,000,000 = (35*$80*365) + (105*(P-$90) * 365) ($7,500,000-$1,022,000)/(105*365) = P-$90 $169.028+$90 = Price Price = $259.028 Key equations Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) Contribution margin per unit Revenue per Unit-Variable Cost per Unit Total contribution margin Total revenue-total variable cost Shortcut to determine break-even volume Fixed costs/contribution margin per unit Break-even equation modified to include desired profit Price x volume=fixed costs + (variable cost per unit x volume) + desired profit Break -even equation modified to include indirect cost and desired profit Price x volume= direct cost +indirect costs + desired profit Where direct costs= direct fixed costs + (direct variable cost per unit x volume) Break-even equation for capitation PMPM x Enrollees= (Enrollees x utilization rate x variable cost per unit) + monthly fixed cost Product margin Total contribution margin-avoidable fixed costs 1) Definitions. Define the previously listed key terms. Answer: Break-even is a number of sales that is required to obtain no profit or no loss from the business. Contribution margin indicates the amount of profit generated from sales after meeting the variables costs. Contribution margin per unit indicates about the per unit profit generated from per unit sales after meeting per unit variable costs. Break-even with desired profit indicates the amount of revenue required to generate the expected profit. Profit margin is the amount of net profit generated from the sales. Break-even capitation indicates about the per month per month enrollees required to result in no profit or loss situation. 2) Break-even formulas. What are the formulas for a) The basic break-even equation? Answer: Basic break-even equation Price x volume=fixed cost + (variable cost per unit x volume) b) The basic break-even equation expanded to include indirect costs and desired profit? Answer: Price x volume=fixed costs + (variable cost per unit x volume) + desired profit 3) Understanding fixed and variable cost. Briefly describe what happens to each of the following as volume increases. Assume all values stay within their relevant range. a) Total fixed cost? Answer: The fixed costs do not change with the increase in volume. Costs will stay the same within the relevant range. b) Total variable cost? Answer: Total variable costs increase with the volume. Variable costs will change with increase or decrease in the volume. c) Fixed cost per unit? Answer: Total fixed cost per unit will decrease with the increase in the volume. Fixed cost per unit and the volume are inversely related. d) Variable cost per unit? Answer: There will be no change in the variable cost per unit with an increase in the volume. Variable cost per unit will always remain at constant level. 4) Step-fixed cost and the relevant range. Explain the relationship between step-fixed costs and the relevant range. Answer: Step fixed costs are those costs that do not change with the relevant rage of higher or lower threshold of the activity. But these costs changes when they are over or below the threshold level. Therefore, till the threshold level that is relevant range these costs are fixed, and beyond the threshold, they vary. 5) Product margin. Based on the product margin, when is it in the best interests of an organization to continue or drop a service? Answer: If the services related to the product create a negative margin, then it will be better to discontinue the service instead of providing the service. There should be a consideration of amount contributed by the service after covering the total variable costs and their related fixed costs before making a decision. If the contribution is lower and the avoidable fixed costs will boost the product margin, then the service should be dropped. 6) Make-or-buy decision and related analyses. a) What is a make-or-buy decision? Answer: Make or buy is a decision that is made by the company as for whether it would be profitable if the company is making the product or purchase from the outside. It is determined based on the detailed comparative analysis between make and buy, and company will make a decision based on the product margin. The one with higher product margin will be selected. b) What other analyses are relevant to the types of decisions discussed in this chapter? Answer: If any new service addition adds value to the decisions, then it should be added so that it will boost the product margin. Similarly, if a service will incur any additional costs to the company, then they should be eliminated. 7) Break-even equation. Fill in the blank. The following table contains selected data concerning several outpatient clinics in the new ambulatory care center at hope university hospital. Fill in the missing information. A Price per visit $85 $70 B Variable cost per visit $20 $35 $55 $78 C Number of visits 3,000 D Contribution margin $220,000 $250,000 3,250 2,500 E Fixed costs F Net income $100,000 $130,000 $165,000 $60,000 $85,000 Answer: Calculation A B C D E F Variable cost per visit Number of visits Contribution margin Fixed costs Net income 85 =((85*3000)220000)/3000 3000 220000 =220000100000 100000 70 20 250000 130000 =250000-130000 =(250000+(35*32 35 =165000+850 165000 85000 Price per visit =250000/(7020) 3250 50))/3250 78 55 A 00 = (7855)*2500 2500 B Variable cost per visit $11.66666 67 C Numb er of visits $70 60000 D E F Contributi on margin Fixed costs Net income 3,000 $220,000 120000 $100,0 00 $20 5000 $250,000 $111.9230 77 $35 3,250 250000 $78 $55 2,500 57500 Price per visit $85 $130,0 00 $165,0 00 $60,00 0 =57500-60000 120000 $85,00 0 -$2,500 8) Calculating break-even volume. Jasmine Gonzales, administrative director of small imaging center, has been asked by the practice members to see if it feasible to add more staff to support the practice's mammography service, which currently has two analogue film or screen units and two technologists. She has complied the following information: Reimbursement per screen $75 Equipment costs per month $1,600 Technologist cost per mammography $20 Technologist aide per mammography $4 Variable cost per mammography $10 Equipment maintenance per month per machine $700 a) What is the monthly patient volume needed per month to cover fixed and variable costs? Answer: Total variable costs = $20+$4+$10 = $34 Contribution per unit = $75-$34 = $41 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$41 = 56.0975 b) What is the patient volume needed per month of small imaging center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? Answer: Patient volume = (Fixed costs + Desired profit) / Contribution margin = ($1,600+$700+$5,000)/$41 = 178.0487 c) If reimbursement decreases to $55 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit? Answer: Contribution = $55-$34 = $21 Break-even = Fixed cost/ Contribution = ($1,600+$700)/$21 = 109.524 d) If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover variable costs but not profit? Answer: Volume to cover variable cost = Revenue/Variable cost = $75/$34 = 2.2058 9) Determining charges for private pay residents. Shady rest nursing home has 140 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $170 per days, whereas private pay residents pay on average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is $90 for supplies, food, and contracted services, and annual fixed costs are $6,500,000. a) What is the daily contribution margin of each non-private pay resident? Answer: Contribution margin = Sales - Variable costs = $170-$90 = $80 b) If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even? Answer: Non-private pay = 140*25% = 35 $6,500,000 = (35*$80*365) + (105*(P-$90) * 365) ($6,500,000-$1,022,000)/(105*365) = P-$90 $142.94+$90 = Price Price = $232.94 c) What if non-private pay payors cover 50 percent of the residents? Answer: Non-private pay = 140*50% = 70 $6,500,000 = (70*$80*365) + (70*(P - $90) * 365) ($6,500,000 - $2,044,000)/(70*365) = P-$90 $116.27+$90 = Price Price = $206.27 d) The owner of shady Rest nursing home insists that the facility earn $1 million in annual profits. How much must the administration raise the per day charge for the privately insured residents if 25 percent of the residents are covered by a non-private pay payors? Answer: Non-private pay = 140*25% =35 $6,500,000+$1,000,000 = (35*$80*365) + (105*(P-$90) * 365) ($7,500,000-$1,022,000)/(105*365) = P-$90 $169.028+$90 = Price Price = $259.028