The Audiology department at Randall Clinic offers many services to the clinic pa

Question

The Audiology department at Randall Clinic offers many services to the clinic patients. The three most common, along with cost and utilization data, are as follows:

Service                 Variable Cost per Service           Annual Direct Fixed Costs      Annual Number of Visits                  

Basic exam                        $5                                         $50,000                                              $3,000

Advanced exam                $7                                         $30,000                                              $1,500

Therapy Session                              $10                                      $40,000                                              $500

A). what is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs?

B). Assume that the audiology department is allocated $100,000 in total overhead by the clinic and the department director has allocated $50,000 of this amount to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits).

C). Assuming that these services must make a combined profit of $25,000. Now what is the fee scheduled. (To answer this question, assume that profit requirement is allocated in the same way overhead costs.

Explanation / Answer

Variable Cost Annual Direct Annual Number Service per Service
Basic examination $5 $50,000 3,000
Advanced examination $ 7 $30,000 1,500
Therapy session $10 $40,000 500

Part A:
Fee schedule:

Basic examination :
5 * 3000 + 50000 = 65000
,per person cost = 65000 / 3000 = 21.66$

Advanced examination:
7 * 1500 + 30000 = 40500
Per person cost = 27$

Therapy session:
10*500 + 40000 = 45000
per person cost:90$

Part B:
the department director has allocated $50,000 of this amount to the three services listed
it will be divided according to the number of visits.
total number of visits=3000 +1500 +500=5000
Per visit allocation = 50000 / 5000 = 10$
New fee schedule =
Basic Examination = 21.66 - 10$ = 11.66$
Advanced examination = 27 - 10 = 17$
Therapy session = 90 - 10 = 80$

Part c:
total profit =25000
total number of visits = 5000
Per person frofit to be made = 5$
so, new fee schedule:
Basic Examination = 11.66$ + 5$ = 16.11 $
Advanced examination = 17$ + 5$ = 22$
Therapy session = 80$ + 5$ = 85$

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