Suneha_Manvi SA-3 BA515

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School

Oregon State University, Corvallis *

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Course

515

Subject

Medicine

Date

Oct 30, 2023

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pdf

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Scenario Analysis #3 Acadia Healthcare (Acadia) operates a general hospital but rents space to separately owned entities rendering specialized services such as pediatrics and oncology. Acadia charges each separate entity for patients’ services (meals and laundry) and for administrative services (billings and collections). Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Acadia charged the following costs to Pediatrics this year: Patient Services (Variable) Bed Capacity (Fixed) Dietary $800,000 Janitorial $95,000 Laundry 375,000 Laboratory 600,000 Pharmacy 460,000 Repairs and Maintenance 40,000 General and Administrative 1,250,000 Rent 3,000,000 Billings and Collections 400,000 Total $2,635,000 $4,385,000 In addition to these charges from Acadia, Pediatrics incurred the following personnel costs: Annual Salaries * Supervising Nurses $185,000 Nurses 270,000 Assistants 240,000 Total $695,000 *These salaries are fixed within the ranges of annual patient-days considered in this problem. During the year, Pediatrics charged each patient $400 per day, had a capacity of 80 beds, and had revenues of $8,000,000 for 365 days. Pediatrics operated at 100 percent capacity on 87 days during this period. It is estimated that during these 87 days, the demand exceeded 100 beds. Acadia will have 20 additional beds available for rent next year. If Pediatrics rents the beds from Acadia, the additional rental would proportionately increase Pediatrics’ annual fixed charges that are based on bed capacity. Your Tasks: a. Calculate the minimum number of patient-days required for Pediatrics to break even next year if the additional beds are not rented. Patient demand is unknown, but assume that revenue per patient- day, cost per patient-day, cost per bed, and salary rates for next year will be consistent with the current year. Show your calculations. b. Assume Pediatrics rents the extra 20-bed capacity from Acadia. Determine the net increase or decrease in earnings by preparing a ‘Schedule of Increases in Revenues and Costs’ for next year. Assume that patient demand, revenue per patient-day, cost per patient-day, cost per bed, and salary rates remain the same as for the current year. Show your calculations. Should Pediatrics rent the extra beds?

TASKS: a. To calculate the minimum number of patient-days required for Pediatrics to break even next year without renting the additional beds, we need to consider the revenues, costs, and the fixed charges based on bed capacity. First, let's calculate the total fixed charges based on bed capacity for the current year: Fixed charges based on bed capacity = $4,385,000 Next, let's calculate the total variable costs per patient-day for the current year: Variable costs per patient-day = Dietary + Janitorial + Laundry + Laboratory + Pharmacy + Repairs and Maintenance + General and Administrative + Billings and Collections = $800,000 + $95,000 + $375,000 + $600,000 + $460,000 + $40,000 + $1,250,000 + $400,000 = $3,020,000. Now, let's calculate the total annual personnel costs for the current year: Total annual personnel costs = Supervising Nurses + Nurses + Assistants = $185,000 + $270,000 + $240,000 = $695,000. Next, let's calculate the total fixed charges for the current year: Total fixed charges = Fixed charges based on bed capacity + Total annual personnel costs = $4,385,000 + $695,000 = $5,080,000. We can calculate the cost per patient-day for the current year by dividing the total fixed charges by the total number of patient-days: Cost per patient-day = Total fixed charges / (revenues / 365) = $5,080,000 / ($8,000,000 / 365) = $5,080,000 / 21,917.81 ≈ $231.79 (rounded to the nearest cent) To break even next year without renting the additional beds, the revenues from patient-days must cover the total costs. Let's assume the revenue per patient-day remains the same as the current year, which is $400. Now, let's calculate the minimum number of patient-days required to break even next year: Minimum patient-days = Total costs / Revenue per patient-day = $5,080,000 / $400 = 12,700. Therefore, Pediatrics would need a minimum of 12,700 patient-days next year to break even without renting the additional beds. Item Amount Fixed charges based on bed capacity $4,385,000 Variable costs per patient-day $3,020,000 Total annual personnel costs $695,000 Total fixed charges $5,080,000 Revenue per patient-day $400 Minimum patient-days to break even 12,700 days.

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