Question

The non-profit University Hospital is contemplating purchasing a new blood gas machine at a cost of $1,500,000. Useful life of this machine is 10 years. The hospital currently serves 5,000 patients per year, 40 percent of whom need blood gas analysis data as part of the diagnostic tests. The blood samples are presently sent to a private laboratory that charges $150 per sample. In-house variable expenses are estimated to be $85 per sample if the hospital purchases the analysis machine. Required: Round your answers up, to the nearest whole number

. 1. Determine the indifference point (expressed in number of tests per year) between purchasing the machine and using the private laboratory.

2. Determine how many additional patients would be needed so that the hospital would be indifferent between purchasing the analysis machine and paying the $150 lab charge.

3. Determine the amount of the private laboratory charge so that the hospital would be indifferent as to purchasing the machine or using the private laboratory, assuming the current service level of 5,000 patients per year.

Answer 1