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    Rate Obtained From Desired Profit

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    Activity: You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budget data is presented below:

    Budgeted procedures: 10,000
    Budgeted cost $400,000
    Desired profit $80,000

    It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

    Payer Volume% Discount %
    Blue Cross 20 4
    Unity PPO 15 10
    Kaiser 10 10
    Self-pay 5 40
    ___
    50%

    Question: What rate must be set to generate the required $80,000 in profit in the preceding example?

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    Solution Preview

    Please see the attached file for detailed solutions.

    2. Question: What rate must be set to generate the required $80,000 in profit in the preceding example?

    Desired revenue = Budgeted Cost + Desired profit = $400,000+$80,000=$480,000
    Budgeted cost per procedure = $400,000/10,000=$40.00
    Revenue from Medicare patients =10000*40%*$38= $152,000
    Revenue from cost payers = 10000*10%*$40=$40,000
    Balance ...

    Solution Summary

    The rate obtained from desired profits is determined.

    $2.19