QUESTIONS 1. Using the historical data as a guide, construct a pro forma (foreca

ID: 2590996 • Letter: Q

Question

QUESTIONS 1. Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement for the clinic's average day for all of 2013 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit? 2. How many additional daily visits must be generated to break even? 3. Thus far, the analysis has considered the clinic's near-term profitability, that is, an average day in 2013. Redo the forecasted profit and loss statement developed in Question 1 for an average day in 2018, five years hence, assuming that volume stays constant (does not increase). (Hint: You must consider likely changes in revenues and costs due to inflation and other factors. The idea here is to see if the clinic can "inflate" its way to profitability even if volume remains at its current level.) 4. Suppose you just found out that the $3,215 monthly malpractice insurance charge is based on an accounting allocation scheme which divides the hospital's total annual malpractice insurance costs by the total annual number of inpatient days and outpatient visits to obtain a per episode charge. Then, the per episode value is multiplied by each department's projected number of patient days or outpatient visits to obtain each department's malpractice cost allocation. What impact does this allocation scheme have on the clinic' s true (cash) profitability? (No calculations are necessary.) s, Does the clinic have any value to the hospital beyond that considezed by the numerical analysis just conducted? Do the actions by Baptist Hospital have any bearing on the final decision regarding the clinic? 6. What is your final reconmendation concerning the future of the walk-in clinic?

Explanation / Answer

As seen in forecast below: As the patient day visits increase the loss becomes lesser

Thus it is better to increase it to full capacity of 60 visits rather than the current situation as the loss is greater

Anyway if the clinic were to wind up there would be bad publicity and would not be a good social decision as there was still a great need as there were patients. Also the lease would have to be settled till its end so it is better to continue than close down

Applyinh "High - Low" method we could re calculate the Income statement as follows:

PROJECTED FORECAST FOR AN INCREASED PATIENT DAY

Net Revenue ( $1845/45 =$41 x 60)

2460

Less: expenses

Salaries & wages

537

Physician fees

851

Malpractice insurance

182

Travel & education

General insurance

utilities

Equipment lease

Building lease

481

Other op expenses

345

2473

LOSS

(13)