Question

Assume a primary care clinic has the following in costs:

Wages and benefits = $280,000

Rent = $10,000 annually

Depreciation = $24,000

Utilities = $3,000

Medical supplies = $50,000

Administrative supplies = $8,000

Visits = 15,000

Assume all costs are fixed except medical supplies.

What is the clinic’s underlying cost structure? ______________

What are the clinic’s total expected costs? _______________

What would the estimated costs be if visits were 5% over expected? ___________

What if they were 8% under expected? ____________

What is the average cost per visit for:

15,000 visits = ______________

5% above = _______________

8% below = ___________________

What price do services need to be set at for the clinic to break even at 15,000 visits? _________________

Answer 1

Assuming like rent, all other costs are also Annual.

Cost Name	Cost Type	Cost for
		Normal	If 5% Over Expected	if 8% under Expected
Wages & Benefits	Fixed	$ 280,000.00	$      280,000.00	$       280,000.00
Rent	Fixed	$    10,000.00	$        10,000.00	$         10,000.00
Depreciation	Fixed	$    24,000.00	$        24,000.00	$         24,000.00
Utilities	Fixed	$      3,000.00	$           3,000.00	$           3,000.00
Medical Supplies	Variable	$    50,000.00	$        52,500.00	$         46,000.00
Administrative Supplies	Fixed	$      8,000.00	$           8,000.00	$           8,000.00
		$ 375,000.00	$      377,500.00	$       371,000.00
Visits		15000	15750	13800
Cost per Visit		$            25.00	$                 23.97	$                 26.88

i) Underlying Cost Structure

Clinic Fixed costs amounts to $325,000 & Variable costs to $ 50,000.

ii) Clinic total expected costs are $375,000 annually

iii) Estimated costs if visits are 5% over expected $ 377,500

iv) Estimated costs if visits are 8% under expected $371,000

v) Average cost per visit for

15,000 visits = $25

15,750 visits = $23.97 (5% over expected)

13,800 visits = $26.88 (8% under expected)

vi) Break even cost Price to be set for 15,000 visits is $25