Question

Hospital for Homeless has the following cost structure: Variable Cost Fixed Costs Personnel $175 Rent $100,000 Supplies $20 Administration $140,000 Laundry $30 Other $60,000 Other $50 Total Fixed Costs $300,000 Total VC/Patient $275 Question 1: What are fixed, variable, total, and average costs per patient for volumes of 100, 500, 1,500, 2,500, and 3,000? Question 2: Create a graph for each of the previously mention costs. Cost should be on vertical axis and number of patient on horizontal. Question 3: An outside organization offers to send HH 500 patient per year and offers to pay $300 per patient. Should the hospital agree to the arrangement? It can easily handle additional patients.

Answer 1

(1) Total Fixed Costs = $300000

Variance Cost/Patient = $275

Total Variable Cost = Variable Cost/Patient * Number of Patients = 275*Number of Patients

Total Costs = Fixed Cost + Variable Cost

Average Cost = Total Costs / Number of Patients

Calculating for given number of patients -

Number of Patients	Fixed Cost	Variable Cost	Total Cost	Average Cost
100	100000	27500	127500	1275.00
500	100000	137500	237500	475.00
1500	100000	412500	512500	341.67
2500	100000	687500	787500	315.00
3000	100000	825000	925000	308.33

(2)  

Fixed Cost 120000 100000 00008 360000 40000 20000 100 500 2500 3000 1500 Number of Patients

Variable Cost 900000 800000 700000 600000 500000 Costs 400000 300000 200000 100000 2500 3000 1500 Number of Patients

Total Cost 1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 100 500 500 2500 3000 1500 Number of Patients

Average Cost 1400.00 1200.00 1000.00 800.00 600.00 400.00 200.00 0.00 500 2500 3000 1500 Number of Patients

Combining all costs in one graph -

1000000 900000 800000 700000 600000 5500000 — Fixed Cost -Variable Cost —Total Cost 400000 300000 200000 100000 100 500 1500 2500 3000

(3) From the costs table, we can see that the average cost per patient is $475 when the number of patients is 500.

Since the outside organization is paying lower than the cost per patient, the hospital should not agree to the arrangement.