The Pediatric Department of Emory Hospital operates as an individual business unit. The department rents space and beds from Emory Hospital, and accordingly receives charges related to janitorial, repairs & maintenance, general & administrative, and rent as listed in the table below. These charges are considered fixed based on the number of beds rented, which is also called bed capacity. When Pediatrics rents a bed, it is rented for the entire year.In addition, the Pediatric Department is charged for specific patient services based on the number of patient days billed.These services are considered variable with respect to the number of patient days. They include dietary, laundry, lab work, pharmacy, and billing & collections as listed in the table below. Last year, actual costs incurred by the Pediatric department are as follows:During the year, Pediatrics charged each patient an average of $350per patient day, had a capacity of 60 beds, and had revenue of $7,000,000 for the 365 days.In addition, the Pediatric Department employed and paid the following personnel directly during the year:

During the year, Pediatrics charged each patient an average of $350per patient day, had a capacity of 60 beds, and had revenue of $7,000,000 for the 365 days.In addition, the Pediatric Department employed and paid the following personnel directly during the year:

The Pediatric Department must follow minimum personnel requirements that are published by the Federal Department of Health and are based on the number of patient days that are availableduring the year. Available patient days are calculated by taking the number of beds times 365 days per year.

These staffing levels represent full time equivalents (FTE). Pediatrics always employs the minimum number of required FTE in order to meet the federal requirements. Salaries of supervising nurses, nurses, and aides are therefore fixed within the range of patient days available during the year.

questions:

1. Last year, Pediatrics operated at 100% capacity on 180 days during. In other words, all 60 beds were filled on those days. It is estimated that if 20 additional beds were available on those days, patient demand would have been sufficient to fill those beds. Emory Hospital has an additional 20 beds available for the PediatricsDepartmentto rent. Such additional rental would increase Pediatrics fixed charges based on additional bed capacity. It is the policy of Emory Hospital that beds must be rented for the entire year. In addition, staffing levels would have to be adjusted accordingly.

Prepare an analysis of increased revenueand increased costif Pediatrics rents the additional 20 beds. Should Pediatrics rent the additional beds? Explain why or why not and be sure to discuss the risks associated with your decision.

2. Discuss the various cost behaviors and related implications that Pediatric Department management has to be aware ofin the planning process. Be sure to use specific examplesfrom the caseof each cost behavior.

3. What might be an additional option (or what-if) that the Pediatrics unit might want to analyze and consider? Prepare the numbers for your what-if option. Be sure your assumptions are realistic. Explain your recommendation and the related risk(s).

Dietary Janitorial Laundry Laboratory Pharmacy Repairs & Maintenance General & Administrative Rent Billings & Collections Totals Basis for Charges Based on Based on Patient Days Bed Capacity (variable) (beds rented) (fixed) $ 600,000 $ 70,000 300,000 450,000 350.000 30,000 800,000 700.000 300,000 $ 2,000,000 $1,600,000 Supervising Nurses Nurses Aides Total Annual Salaries $80,000 $50,000 $20,000 Number Required 4 10 20 Total Annual Salaries $ 320,000 500.000 400.000 $1,220,000 Patient Days Available During the year Number of Aides Number of Nurses Number of Supervising Nurses 4 4 5 Up to 21,900 days 21,900 to 25,915 days 25,916 to 30,100 days 20 24 28 10 12 14 5 Dietary Janitorial Laundry Laboratory Pharmacy Repairs & Maintenance General & Administrative Rent Billings & Collections Totals Basis for Charges Based on Based on Patient Days Bed Capacity (variable) (beds rented) (fixed) $ 600,000 $ 70,000 300,000 450,000 350.000 30,000 800,000 700.000 300,000 $ 2,000,000 $1,600,000 Supervising Nurses Nurses Aides Total Annual Salaries $80,000 $50,000 $20,000 Number Required 4 10 20 Total Annual Salaries $ 320,000 500.000 400.000 $1,220,000 Patient Days Available During the year Number of Aides Number of Nurses Number of Supervising Nurses 4 4 5 Up to 21,900 days 21,900 to 25,915 days 25,916 to 30,100 days 20 24 28 10 12 14 5