Question

4.3) General Hospital, a not-for-profit acute care facility, has estimated the following costs for its inpatient services:

Fixed costs $10,000,000        

Variable cost per inpatient day $200

The hospital expects to have 15,000 inpatient days next year.

a.What is the hospital's underlying cost structure?

b.What are the hospital's expected total costs?

c.What are the hospital's estimated total costs at 12,500 inpatient days? At 17,500 inpatient days?

d.What is the average cost per inpatient day at 12,500, 15,000, and 17,500 inpatient days?

(If using equations or formulas please provide them.)

Answer 1

Answer a.

Variable cost per inpatient day = $200
Fixed costs = $10,000,000

Total Cost = Variable cost per inpatient day * Number of inpatient days + Fixed costs
Total Cost = $200 * Number of inpatient days + $10,000,000

Answer b.

Number of inpatient days = 15,000

Total Cost = $200 * Number of inpatient days + $10,000,000
Total Cost = $200 * 15,000 + $10,000,000
Total Cost = $13,000,000

Answer c.

If number of inpatient days are 12,500:

Total Cost = $200 * Number of inpatient days + $10,000,000
Total Cost = $200 * 12,500 + $10,000,000
Total Cost = $12,500,000

If number of inpatient days are 17,500:

Total Cost = $200 * Number of inpatient days + $10,000,000
Total Cost = $200 * 17,500 + $10,000,000
Total Cost = $13,500,000

Answer d.

If number of inpatient days are 12,500:

Average cost per inpatient day = Total Cost / Number of inpatient days
Average cost per inpatient day = $12,500,000 / 12,500
Average cost per inpatient day = $1,000

If number of inpatient days are 15,000:

Average cost per inpatient day = Total Cost / Number of inpatient days
Average cost per inpatient day = $13,000,000 / 15,000
Average cost per inpatient day = $866.67

If number of inpatient days are 17,500:

Average cost per inpatient day = Total Cost / Number of inpatient days
Average cost per inpatient day = $13,500,000 / 17,500
Average cost per inpatient day = $771.43