Use the following information to answer questions 3, 4, and 5: You have been ask
ID: 2701498 • Letter: U
Question
Use the following information to answer questions 3, 4, and 5:
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:
20
4
15
10
10
10
5
40
50%
3. What rate must be set to generate the required $80,000 in profit in the preceding example?
4. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
5. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?
6. You wish to retire a $10,000,000 bond that can be called in 5 years for 110 percent of par value, or $11,000,000. You also need to make year-end interest payments of $700,000 per year in each of the next five years. If you can invest money at 8 percent, how much money must you set aside today to meet these obligations?
Explanation / Answer
3. The answer is $59.96.
For the sake of checking let%u2019s complete the table above.
Budgeted Receipts of Payments
40% of Total Radiology 152,000
10% of Total Radiology 59,960
50% of Total Radiology 268,021 479,981
Less: Budgeted Cost (400,000)
= Desired profit 79,981
***The $19 variance ($80,000 %u2013 79,981) is due to rounding off.
4.Following the same procedure as above, we%u2019ll have
Total Budgeted Procedure = 40% x 12,000 = 4,800 Procedures
Total Budgeted Receipt of Payments = 4,800 volume x $ 38.00 = $ 182,400
Total Budgeted Procedure = 10% x 12,000 = 1,200 Procedures
So, the Total Budgeted Receipt of Payments = 1,200 x P = 1,200P
Payer Volume % Discount Net Volume Total Estimated Procedure Total Estimated Net Volume of Procedure
(a) (b) .(c) (d) (e)
a x (1-b) c x d
Blue Cross 20% 4% 19.20% 12,000 2,304
Unity PPO 15% 10% 13.50% 12,000 1,620
Kaiser 10% 10% 9.00% 12,000 1,080
Self Pay 5% 40% 3.00% 12,000 360
Total 50% 44.70% 5,364
Total Budgeted Receipt of Payments = 5,364 x P = 5,364P
Equation: (182,400 + 1,200P + 5,364P) %u2013 440,000 = 80,000
1,200P + 5,364P = 80,000 %u2013 182,400 + 440,000
6,564P = 337,600
P = $ 51.43
The price will be $ 51.43
5.We%u2019ll have:
Total Budgeted Procedure = 40% x 10,000 = 4,000 Procedures
Total Budgeted Receipt of Payments = 4,000 volume x $ 38.00 = $ 152,000
Total Budgeted Procedure = 10% x 10,000 = 1,000 Procedures
So, the Total Budgeted Receipt of Payments = 1,000 x P = 1,000P
Payer Volume % Discount Net Volume Total Estimated Procedure Total Estimated Net Volume of Procedure
(a) (b) .(c) (d) (e)
a x (1-b) c x d
Blue Cross 20% 20% 16.00% 10,000 1,600
Unity PPO 15% 10% 13.50% 10,000 1,350
Kaiser 10% 10% 9.00% 10,000 900
Self Pay 5% 40% 3.00% 10,000 300
Total 50% 41.50% 4,150
Total Budgeted Receipt of Payments = 4,150 x P = 4,150P
Equation: (152,000 + 1,000P + 4,150P) %u2013 400,000 = 80,000
1,000P + 4,150P = 80,000 %u2013 152,000 + 400,000
5,150P = 328,000
P = $63.69
The price will be $ 63.69
6.If a nurse deposits $1,000 today in a bank account and the interest is compounded annually at 12%, what will be the value of this investment:
a) five years from now?
FV = 1,000 (1.12)5
FV = $1,762.34
b) ten years from now?
FV = 1,000 (1.12)10
FV = $3,105.85
c) fifteen years from now?
FV = 1,000 (1.12)15
FV = $5,473.57
d) twenty years from now?
FV = 1,000 (1.12)20
FV = $9,646.29
If the business manager deposits $200 in a savings account at the end of each year for twenty years what will be the value of her investment:
a) at a compounded rate of 10%? $ 11,455.00
b) at a compounded rate of 14%? $18,204.99
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