Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It h
ID: 2652476 • Letter: F
Question
Fargo Memorial Hospital has annual patient service revenues of $14,400,000. It has two major third-party payers, and some of its patients are self-payers. The hospital's patient accounts manager estimates that 10% of the hospital's billings are paid (received by the hospital) on Day 30, 60% are paid on Day 60, and 30% are paid on Day 90. (5% of total billings end up as bad debt losses, but that figure is not relevant to this problem.)
D) Suppose the hospital's annual cost of carrying receivables is 10%. If the electronic claims system costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables balance has to be financed.)
Explanation / Answer
Total revenues 14,400,000.00 Particulars Revenues Interest(Receivables*10%*Days/360) Day 30 @10% 1,440,000.00 12,000.00 Day 60@60% 8,640,000.00 144,000.00 Day90@30% 4,320,000.00 108,000.00 Total interest Cost in the year 264,000.00 Systems Cost 30,000.00 Net Savings 234,000.00 Thus system should be adopted
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