Budgeting & Finance for Healthcare

Cost Behavior: Problem 1

John Smart is the administrator of the cardiac surgery service line. Consider the following costs for cardiac surgery over the relevant range of 5,000 to 8,000 hours of operating time :

Required:

Compute the missing amounts, assuming that cost behavior patterns remain unchanged within the relevant range of 5,000 to 8,000 hours. Use Excel or Google Sheets to show your work.

	Hours of Operating Time
	5,000	6,000	7,000	8,000
Total Costs
Variable Cost	$20,000	?	?	?
Fixed Costs	$168,000	?	?	?
Total Costs	$188,000	?	?	?
Cost Per hour
Variable Cost	?	?	?	?
Fixed Costs	?	?	?	?
Total Cost Per hour	?	?	?	?

Cost Behavior: Problem 2

Cost behaves in very predictable ways. Complete the following table which describes the behavior of cost as increases, decreases or remains the same. If you complete Problem 1 correctly you will have an opportunity to observe these predictable patterns.

	AS ACTIVITY INCREASES		AS ACTIVITY DECREASES
Cost Behavior	Total Cost	Cost per Unit	Total Cost	Cost per unit
Variable
Fixed
Mixed

Cost Behavior: Problem 3

The administrator of Azalea Hills Hospital would like a cost formula linking the administrative costs involved in admitting patients to the number of patients admitted during a month. The Admitting Departments costs and the number of patients admitted during the immediately preceding eight months are given in the following table:

Required:

1. Use the high-low method to estimate the fixed and variable components of admitting costs. Use Excel or Sheets to show your work.

2. Express the fixed and variable components of admitting costs as a cost formula in the form Y= a+ bX.

Cost Behavior: Problem 4

Hopeful Hospital processes its own laboratory specimens. The Vice President for support services wants to determine the fixed and variable components of services provided and decides to use the high low method and operating data from the past six months. Determine the variable cost and the fixed cost. Use Excel or Sheets to show your work.

	Laboratory Costs	Specimens Processed
January	$ 1,710,000	450,000
February	$ 2,090,000	580,000
March	$ 1,632,000	405,000
April	$ 2,105,000	600,000
May	$ 1,900,000	520,000
June	$ 2,145,000	610,000

Required:

1. Use the high-low method to estimate the fixed and variable components of admitting costs. Use Excel or Sheets to show your work.

2. Express the fixed and variable components of admitting costs as a cost formula in the form Y= a+ bX.

Cost Behavior: Problem 5

The Cardiology Department has provided you with the following data in its annual report:

Month Number of EKGS Costs

January...................... 175 $3,000

February.................... 225 3,600

March......................... 275 4,300

April............................ 175 3,800

May............................ 200 2,700

June........................... 225 3,200

July............................ 300 4,250

August........................ 325 4,400

September................. 275 4,100

October...................... 200 3,150

November.................. 150 2,650

December.................. 175 2,750

1. Use the scattergraph method to determine the fixed and variable components of admitting costs. Use Excel or Sheets to show your work.

2. Use the sheet function to show the equation. Determine r2. Be sure to explain your findings in term of the fixed and variable cost. Interpret the r2.

Cost Behavior: Problem 6

1. The following information has been provided by the Pharmacy for the third quarter of the year:

Revenue	$1,300,000
Fixed cost	140,000
Variable cost	480,000
Fixed administrative expenses	120,000
Variable administrative expenses	80,000
Fixed selling expenses	60,000
Variable selling expense	150,000

Required:

What is the pharmacys contribution margin for the quarter? Use Excel or Sheets to show your work.

Cost Behavior: Problem 7

Determine Profit from Learning Disability Clinic Visits:

Average Price/Revenue Per Visit: $150

First Years Fixed Costs: $216,000 (clinical salaries, test kits, overhead)

Variable Cost: $5 per visit (based on each patient using two test booklets @ $2.50 per booklet)

Calculate: How much profit will the clinic make in the first year if they can schedule 10 patients per day (50 per week) for learning disabilities diagnostic work-ups?

Cost Behavior: Problem 8

Determine the missing amounts:

Use Excel or Sheets to show your work.

Row	Revenue per Unit	Unit Variable Costs	Contribution Margin per Unit	Contribution Margin Ratio
a	$ 250	$ 180	?	?
b	$ 500	?	$ 300	?
c	?	?	$ 330	30%

Cost Behavior: Problem 9

Cost Behavior: Problem 10

Determine Break Even from Learning Disability Clinic Visits:

Average Price/Revenue Per Visit: $150

First Years Fixed Costs: $216,000 (clinical salaries, test kits, overhead)

Variable Cost: $5 per visit (based on each patient using two test booklets @ $2.50 per booklet)

Calculate: How much profit will the clinic make in the first year if they can schedule 10 patients per day (50 per week) for learning disabilities diagnostic work-ups?

Breakeven Analysis: What is the minimum volume required for the clinic in the first year in order to break-even (i.e., where Profit=0)?

Cost Behavior: Problem 11

Case Study:

Your are the business administrator for the mother baby unit at Our Lady of Mercy Womens Hospital. To encourage exclusive breastfeeding the state decides to reimburse hospitals for home visits by a lactation consultant. OLM hospital wants to consider participating in this state funded program and asks you to prepare the business case for the senior leadership. You decide to perform a CVP analysis with an executive summary. Your CVP graph is pictured below. The revenue is listed on the y-axis (vertical) and the visits are listed on the x-axis (horizontal). Total costs and total revenue is listed in the table in rows 2 and 3 respectively.

In your brief summary be sure to discuss the following: revenue per visit, cost per visit, fixed cost and the break even point and discussion of profit. In your analysis you might want to discuss the following: What is the unit sale price? What is the cost per unit? What is the fixed cost? What is the break-even point?

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