Fundamentals of Healthcare Finance (2nd Edition)

5.1 End of Chapter Problems

Assume that the managers of the Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data estimates:

Variable Cost Per Visit $5.00

Annual Direct fixed Cost $500,000

Annual overhead allocation $50,000

Expected annual utilization 10,000 visits

1. What per visit price must be set for the service to break-even? To earn an annual profit of $100,000?

Insert your response here.

2. Repeat Part a. but assume that the variable cost per visit is $10.

Insert your response here.

3. Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000.

Insert your response here.

4. Repeat Part a assuming both a $10. Variable cost and $1,000,000 in direct fixed costs.

Insert your response here.

5.8 You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Revenues (10,000) $400,000

Wages and Benefits $220,000

Rent 5,000

Depreciation 30,000

Utilities 2,500

Medical Supplies 50,000

Administrative Supplies 10,000

Assume that all cost are fixed except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 30 percent rate.

1. Construct the clinics projected P & L statement.

Insert your response here.

2. What number of visit is required to break-even?

Insert your response here.

3. What number of visits is required to provide you with an after-tax profit of $100,000?

Insert your response here.