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Fixed Cost Analysis

Company, a not-for-profit acute care facility has this cost structure for its inpatient services:

Fixed costs $10,000,000
Variable cost per inpatient day $200
Charge (revenue) per inpatient day $1,000

The hospital expects to have a patient load of 15,000 inpatient days next year.

1. Construct hospitalâ??s base case projected P&L statement

2. Hospitalâ??s break-even point

3. What volume is required to provide a profit of $1,000,000. A profit of $500,000?

4. Assume that 20 percent of the hospitalâ??s inpatient days come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discount proposal?

Managers of a hospital are setting the price on a new outpatient service. Data listed:

Variable cost per visit $5.00
Annual direct fixed costs $500,000
Annual overhead allocation $50,000
Expected annual utilization 10,000 visits

1. What per visit must be set for the service to break even? To earn annual profit of $100,000.

2. Repeat Part 1, assume variable cost per visit is $10

3. Return to the data given in problem. Again repeat Part 1, but assume direct costs are $1,000,000

4. Repeat Part 1 assuming both a $10 variable cost and $1,000,000 in direct fixed costs

Solution Summary

The solution performs a Fixed Cost Analysis for a not-for-profit acute care facility and computes projected P&L statement
, breakeven point, required profit, agreeing on discount proposal decision.