Delaware Medical Center operates a general hospital. The medical center also ren
ID: 2541412 • Letter: D
Question
Delaware Medical Center operates a general hospital. The medical center also rents space and beds to separately owned entities rendering specialized services, such as Pediatrics and Psychiatric Care. Delaware charges each separate entity for common services, such as patients’ meals and laundry, and for administrative services, such as billings and collections. Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Delaware Medical Center charged the following costs to Pediatrics for the year ended June 30, 20x1:
During the year ended June 30, 20x5, Pediatrics charged each patient an average of $500 per day, had a capacity of 70 beds, and had revenue of $3 million for 365 days. In addition, Pediatrics directly employed personnel with the following annual salary costs per employee: supervising nurses, $25,200; nurses, $21,000; and aides, $8,800. Delaware Medical Center has the following minimum departmental personnel requirements, based on total annual patient days:
Pediatrics always employs only the minimum number of required personnel. Salaries of supervising nurses, nurses, and aides are therefore fixed within ranges of annual patient days.
Pediatrics operated at 100 percent capacity on 85 days during the year ended June 30, 20x1. Administrators estimate that on these 85 days, Pediatrics could have filled another 20 beds above capacity. Delaware Medical Center has an additional 20 beds available for rent for the year ending June 30, 20x2. Such additional rental would increase Pediatrics’ fixed charges based on bed capacity. (In the following requirements, ignore income taxes.)
1.Calculate the minimum number of patient days required for Pediatrics to break even for the year ending June 30, 20x2, if the additional 20 beds are not rented. Patient demand is unknown, but assume that revenue per patient day, cost per patient day, cost per bed, and salary rates will remain the same as for the year ended June 30, 20x1.
2.Assume that patient demand, revenue per patient day, cost per patient day, cost per bed, and salary rates for the year ending June 30, 20x2, remain the same as for the year ended June 30, 20x1. Prepare a schedule of Pediatrics’ increase in revenue and increase in costs for the year ending June 30, 20x2. Determine the net increase or decrease in Pediatrics’ earnings from the additional 20 beds if Pediatrics rents this extra capacity from Delaware Medical Center.
Please show how you got these answers so I can understand the steps to take. TY
Patient Days (variable) $560,000 Bed Capacity (fixed) ietary anitorial aundry aboratory harmacy epairs and maintenance General and dministrative ent illings and collections $79,000 230,000 410,000 330,000 36,000 1,390,000 1,510,000 $ 1,820,000$ 3,015,000 290,000 TotalExplanation / Answer
Answer to Q. No. 1
1, if the additional 20 beds are not rented. Patient demand is unknown, but assume that revenue per patient day, cost per patient day, cost per bed, and salary rates will remain the same as for the year ended June 30, 20x1.
Pediatrics revenue of $3 million for 365 days
Pediatrics charged each patient an average of $500 per day
Therefore total Annual Patients days for which revenue earned
= $3,000,000/$500
= 6000 patients days
So, variable cost per patient days =$1,820,000/6000=$303.33
Cost incurred by Pediatrics to earned $3 million
Pediatrics always employs only the minimum number of required personnel.
Therefore Annual Salaries of
4 supervising nurses, $100,000
10 nurses, $210,000
20 aides $176,000
Total $486,000
Total Fixed cost =$3,015,000+$486,000
=$3,501,000
Therefore Margin =$500-$303.33=$196.67
Therefore Breakeven point = $3,501,000/$196.67 =17801.39 patients days
If 20 beds is rented it would increase the Fixed cost by =$3,015,000x20/70=$861,428
Then increase in break even point will be = $861,428/$196.67 =4380 patients days.
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