Provide detailed descriptions and show all calculations used to arrive at soluti

Question

Provide detailed descriptions and show all calculations used to arrive at solutions for the following questions:


1. Your firm has $45.0 million invested in accounts receivable, which is 90 days of net revenues. If this value could be reduced to 50 days, what annual increase in income would your firm realize if the increase in cash could be invested at 7.5 percent?


Use the following information to answer questions 2, 3, and 4:

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%

Your supervisor recommends the following method to set the rate per procedure in order to generate the required $80,000 in profit:

Weighted Discount = (0.4 × 0.04) + (0.30 × 0.10) + (0.20 × 0.10) + (0.10 × 0.40)

= 0.106

Price   =   ($400,000 ÷ 10,000) + [($80,000 + 4,000 ($40.00 – $38.00)) ÷ 5,000]

                                                            1 – 0.106

=($40.00 + $17.60)/.894 = $64.43

2. 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?

3. 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?

Number of Budgeted Procedures 10,000 Budgeted Cost $400,000 Desired Profit $ 80,000

Explanation / Answer

Ans

Ans 1 Details Amount Accounts receivables (90 days of net revenue)     450,00,000.00 Revised Accounts receivables (50 days of net revenue) Net Revenue=45000000/90*365 1825,00,000.00 If it reduced to 50 days=182500000/365*50     250,00,000.00 Increase in income expected for 7.5% of opportunity cost (45,000,000-25,000,000)*7.5%       15,00,000.00 Ans 2 Revised Budged Cost          4,40,000.00 Revised No of Procedures             12,000.00 Desired Profit ( assumed to be the same)             80,000.00 Total Price to be recovered          5,20,000.00 Recovery Pattern Medicare Patients 40% of 12000 *38          1,82,400.00 Cost Payers 10% of 12000 *(440000/12000)             44,000.00          2,26,400.00 Remaining recovery          2,93,600.00 Weighted average discount 10.60% Weighted Net price after discount 89.4% Weighted Gross price=293600/(12000*.50)/.894                      54.74 Weighted Net price=293600/(12000*.50)                      48.93 Ans 3 Budgeted Cost 400000 Desired Profit 80000 480000 Recovery Pattern Medicare Patients 40% of 10000 *38          1,52,000.00 Cost Payers 10% of 10000 *(400000/10000)             40,000.00          1,92,000.00 Remaining recovery          2,88,000.00 Discount calculation Volume Discount WAD Blue cross 20% 20% 8.00% Unity 15% 10% 3.00% Kaiser 10% 10% 2.00% Self-Pay 5% 40% 4.00% 17.00% Price to be set (Remaing recovery/No of Procedure)/1-.17                      69.40

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