Consider the following data: Fixed costs = $10 million Variable cost per inpatient day = $400 Revenue per inpatient day = $1,200

A. What is the contribution margin? What is the breakeven volume (in patient days) and what is the average cost per patient day?

B. Consider your answers in part A above and assume the providers volume is at or above the breakeven level you calculated. A new insurance company has approached you (the providers CFO) and offered to reimburse you at a rate of 85% of your average cost and promises to bring in an additional 3,500 patient days per year. You know that there is now room for negotiates with this insurance so this is a take it or leave it offer. Briefly explain why you should or should not take this offer. Calculate the profit or loss from accepting this contract (assume the 3,500 extra patient days is correct).

(please show all work, thank you!)