The Metropolitan City Hospital is unionized. In 2006, nurses received an average annual salary of $45,000. The hospital administrator is considering how the contract with nurses should be changed for 2007. In turn, charging nursing costs to each department might also be changed.
Each department is accountable for its financial performance. Revenues and expenses are allocated to departments. Consider the expenses of the obstetrics department in 2006:
Variable expenses (based on 2006 patient-days) are

Fixed expenses (based on number of beds) are

Nurses are assigned to departments on the basis of annual patient-days, as follows:

Total patient-days are the number of patients multiplied by the number of days they are hospitalized. Each department is charged for the salaries of the nurses assigned to it. 

During 2006 the obstetrics department had a capacity of 60 beds, billed insurance and government agencies an average of $800 per day for each patient, and had revenues of $12 million. 

1. Compute the 2006 volume of activity in patient-days. 

2. Compute the 2006 patient-days that would have been necessary for the obstetrics department to recoup all fixed expenses except nursing expenses. 

3. Compute the 2006 patient-days that would have been necessary for the obstetrics department to break even, including nurses' salaries as a fixed cost. 

4. Suppose obstetrics must pay $200 per patient-day for nursing services. This plan would replace the two-level fixed-cost system employed in 2006. Compute what the break-even point in patient-days would have been in 2006 under this plan.

Transcribed Image Text:

Meals Laundry $ 510,000 260,000 Laboratory 900,000 Pharmacy 800,000 Maintenance 150,000 Other 530,000 Total $3,150,000