Question

In: Finance

(The following data apply to the next three questions.) Assume the following cost and revenue data...

(The following data apply to the next three questions.)

Assume the following cost and revenue data for General Hospital: Fixed costs = $15,000,000. Variable cost per inpatient day = $250. Revenue per inpatient day = $1,000.

1. What is the expected profit at a volume of 25,000 inpatient days?

a. -$3,750,000 b. $ 0 c. $1,750,000 d. $2,750,000 e. $3,750,000

2. What revenue per inpatient day is required to obtain a profit of $1,000,000 at a volume of 25,000 patient days?

a. $750 b. $790 c. $850 d. $890 e. $950

3. Which of the follow statements best describes the contribution margin?

a. The contribution margin is defined as fixed costs minus variable costs.

b. Under fee-for-service, the contribution margin is the dollar amount of each unit of service that is available first to cover fixed costs and then to contribute to profit. c. Under capitation, the contribution margin is the dollar amount of each PMPM premium that is available to pay for administration overhead.

d. The contribution margin is defined as revenues minus fixed costs.

e. Under capitation, the total contribution margin is the contribution margin multiplied by the PMPM premium rate.

Expert Solution

Ans:- (1) Fixed costs is given $15000000, Variable costs per inpatient is given $250. Revenue per inpatient is given $1000.

Here we need to calculate the total profit with a volume of 25000.

Therefore the profit earned will 25000 * 1000 -25000 * 250 - 15000000.= $3750000.

The correct answer is an option(e)

(2) Fixed costs is given $15000000 i.e 15 million, Variable cost per patient is given 250.

The total variable cost for 25000 patients will be 25000 * 250 = 6250000 i.e 6.25 million.

Total Break-even cost will be 15 million + 6.25 million = 21.25 million.

Now to earn 1 million total revenue that should be generated will be 21.25 million + 1 million = 22.25.

Now 22.25 million revenue should be generated from 25000 patients to earn million.

Therefore the revenue per patient will be given by 22.25 million/25000 i.e 22250000/25000 = $890.

Here option D is the right answer.

(3) Contribution Margin: - The total contribution margin generated by a company is defined as the earning available is first used to pay for fixed costs and then to generates profit.

Therefore the best option which defines the contribution margin is Option B

jeff jeffy answered 1 month ago

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