Question

In: Accounting

COSTS AND REVENUES FOR URGENT CARE CENTER COSTS: Urgent Care Center All costs and revenues are...

COSTS AND REVENUES FOR URGENT CARE CENTER

COSTS: Urgent Care Center

All costs and revenues are per year

* Labor Cost

5 Primary Care Physicians                   Salary $150,000            $   750,000

8 RN/BSN Salary                                  Salary $ 64,000              $   512,000

Payroll Taxes (all employees)                                                    $   327,400

Benefits (all employees)                                                            $1,893,000

                                                                                                        

* Other Variable Costs

Supplies & Misc. Overhead                                                        $    102,400

Advertising                                                                                 $      35,000

      TOTAL VARIABLE COST        $3,619,800

* Capital Cost

Annualized Building Cost                                                           $    465,403

Annualized Equipment Cost                                                       $     93,081               

* Other Fixed Costs

Insurance                                                                                   $   341,295

Legal                                                                                          $   232,701

Administrative                                                                           $   418,873

Administrative Fee to Franchise                                                $   120,000

TOTAL FIXED COST                  $ 1,671,343

                                                                                   

REVENUES: Urgent Care Center

Each for the five (5) primary care physicians can see 3200 patients in a year, at an average annual fee per patient of $300.

Question 1: Feasible Range for the Urgent Care Center

In order to justify our scale of operation we must be able to attract enough patients to be inside the feasible range of production. The feasible range is governed by the way productivity changes as more staff must share the fixed resources. Unfortunately it is rare for detailed information about productivity to be available to decision-makers. However because of the one-to-one correspondence between productivity and cost, we can see the boundaries of the feasible range reflected in our variable costs, and these costs are always available to decision makers on a detailed and up-to-date basis.

Step 1: Find Average Variable Cost by dividing the Total Variable Cost by the total number of patients served by all four physicians, given under Revenues.

Step 2: The fee per patient is also given under Revenues. Does the fee per patient cover the Average Variable Cost?

Question 2: Breaking Even for the Urgent Care Center

In the short run it is enough to establish that your scale of operation is justified, but in the long run we have to cover our capital costs as well as our labor and other variable costs.

Step 1: Find the Total Cost by summing the Total Variable Cost and Total Fixed Cost.

Step 2: Find the Average Total Cost by dividing Total Cost by the total number of patients served by four physicians.

Step 3: Does the fee per patient cover the Average Total Cost?

Solutions

Expert Solution

Patients served by 1 physician annually = 3,200

Hence, total patients served by 5 physicians annually = 3,200 x 5

= 16,000

(i) Average variable cost = Total variable cost

Total number of patients served

= 3,619,800

16,000

= $226.24

(ii) Fee per patient = $300

Since the fee per patient is more than the average variable cost, hence it covers average variable cost.

(iii) Contribution margin per patient = Fee per patient - Average variable cost per patient

= 300 - 226.24

= $73.76

Break even point = Fixed cost

Contribution margin per patient

= 1,671,343

73.76

= 22,659 patients

Hence to break even, annually 22,659 patients must be served.

(iv) Total cost = Total variable cost + Total fixed cost

= 3,619,800 + 1,671,343

= $5,291,143

(v) Average total cost =   Total cost  

     Total number of patients served

= 5,291,143

16,000

= $330.7

(vi) Since the fee per patient is less than average total cost, hence it does not cover average total cost.


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