9-3 Cost-Volume-Profit Analysis and Strategy Melford Hospital operates a general hospital, but rents space and beds to separately-owned entities rendering specialized services such as pediatrics and psychiatric care. Melford charges each separate entity for common services such as patients' meals and laundry, and for administrative services such as 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 for the year ended June 30, 2010: Patient Days Bed Capacity gvariable! gfixed! Dietary ...................................... $ 600,000 Janitorial ................................... $ 70,000 Laundry ..................................... 300,000 Laboratory 450,000 Pharmacy .................................. 350,000 Repairs and maintenance ............ 30,000 General and administrative ........ 1,300,000 Rent ........................................... 1,500,000 Billings and collections .............. 300,000 Total ....................................... M M ppppppppppppppppppppppppppppppppppppppppppppppppppp During the year ended June 30, 2010, pediatrics charged each patient an average of $300 per day, had a capacity of 60 beds, and had revenue of $6,000,000 for 365 days. In addition, pediatrics directly employed the following personnel: Annual Salaries Supervising nurses .................... $25,000 Nurses ...................................... 20,000 Aides ........................................ 9,000 Melford has the following minimum departmental personnel requirements based on total annual patients days: Annual Patient Days Aides Nurses Supervising Nurses Up to 21,900 .............................. 20 10 4 21,900 to 26,000 ........................ 26 13 4 26,001 to 29,200 ........................ 30 15 4 These staffing levels represent full-time equivalents. Pediatrics always employs only the minimum number of required full-time personnel. Salaries of supervising nurses, nurses, and aides are therefor fixed within ranges of annual patient days. Pediatrics operated at 100% capacity on 90 days during the year ended June 30, 2010. It is estimated that during these 90 days the demand exceeded 20 patients more than capacity. Melford has an additional 20 beds available for rent for the year ending June 30, 2011. Such additional rental would increase pediatrics' fixed charges based on bed capacity