HSA 525: Week 3 Homework 5.1 Consider the CVP graphs below for two providers operating in a fee-for-service environment: see attached file a. Assuming the graphs are drawn to the same scale, which...

Solution 5.1
(a) Provider B has greater fixed costs.
Provider A has greater variable cost rate.
Provider B has greater per unit revenue.
(b) Provider B has greater contribution margin.
(c) Provider B needs higher volume to break even.
(d) The variable cost line will be more steeped.
The fixed cost line will intercept the Y-axis at more height.
Solution 5.3
Fixed costs $500,000
Variable cost per procedure $25
Charge (revenue) per procedure $100
Forecasted procedures in coming yr 7,500
(a) Expenditure Revenue
Fixed cost: $500,000 Revenue: $100*7,500 $750,000
Variable cost: $25*7,500 $187,500
Profit: $62,500
Total $750,000 Total $750,000
(b) Contribution margin = Revenue - variable costs
= $750,000 - $187,500
= $562,500
(c) Required profit = $100,000
Let, required volume = V
Hence, V*(100 - 25) - 500,000 = 100,000
V*75 = 600,000
V = 8,000
If required profit is $200,000
Then, V*(100 - 25) - 500,000 = 200,000
V*75 = 700,000
V = 9,333.33
(d) Fixed costs $500,000
Variable cost per procedure $25
Charge (revenue) per procedure $100*0.8 = $80
Forecasted procedures in coming yr 7,500
(a) Expenditure Revenue
Fixed cost: $500,000 Revenue: $80*7,500 $600,000
Variable cost: $25*7,500 $187,500 Loss: $87,500
Total $687,500 Total $687,500
(b) Contribution margin = Revenue - variable costs
= $600,000 - $187,500
= $462,500
(c) Required profit = $100,000
Let, required volume = V
Hence, V*(80 - 25) - 500,000 = 100,000
V*55 = 600,000
V = 10,909.09
If required profit is $200,000
Then, V*(80 - 25) - 500,000 = 200,000
V*55 = 700,000
V = 12,727.27
Solution 5.4
Fixed costs $10,000,000
Variable cost per impatient day $200
Charge (revenue) per impatient day $1,000
(a) Expected inpatient day next year 15,000
Expenditure Revenue
Fixed cost: $10,000,000 Revenue: $1000*15,000 $15,000,000
Variable cost: $200*15,000 $3,000,000
Profit: $2,000,000
Total $15,000,000 Total $15,000,000
(b) Contribution per impatient day = $1,000 - $200 = $800
Breakeven point = Fixed costs/ Contribution per impatient day
= $10,000,000/$800
= 12,500
(c) Required profit = $1,000,000
Let, required number of impatient day = V
Hence, V*(1,000 - 200) - 10,000,000 = 1,000,000
V*800 = 11,000,000
V = 13,750
If required profit is $500,000
Then, V*(1,000 - 200) - 10,000,000 = 500,000
V*800 = 15,000,000
V = 18,750
(d) If proposal is accepted,
New revenue = 15,000*0.2*1,000*0.75 + 15,000*0.8*1,000
= 2,250,000 + 12,000,000
= $14,250,000
Fixed costs = $10,000,000
Variable costs = 200*15,000
= $3,000,000
Hence, profit = $14,250,000 - $10,000,000 - $3,000,000
= $1,250,000
Without proposal,
Revenue = 15,000*0.8*1,000
= $12,000,000
Fixed costs = $10,000,000
...