Question

An ophthalmology practice is analyzing it outputs, cost, and prices to determine if changes are needed. The practice provides five types of eye surgery: Lasik, Photorefractive keratectomy, Lens implants, Cataract surgery and Vitrectomy. Current output costs are based on total practice costs of $2,000,000 and the physician’s assessment in 2016 of how much time she devotes to each type of surgery (surgery is performed twice per week or 768 hours per year are devoted to surgery).  

Calculate cost per output given the physician’s time estimate, do current prices cover costs?

Surgery                                     Price               % Time             Quantity               Cost/Output

Lasik                                           $800              30%                 847                   _____

Photorefractive keratectomy          $700              20%                 491                   _________           

Lens implants                            $1,000              25%                 523                   _________

Cataract surgery                           $900              15%                 264                   _________

Vitrectomy                                $1,200              10%                 239                   _________

A time study was recently performed to determine the average minutes per surgery, calculate the new cost per output based on minutes, compare the costs determined by estimating the percentage of time spent and the time study, how and why have the costs changed? What is the cost of non-productive time?

Minutes                Total             % Total                Total

Surgery                                     Per Case          Minutes           Time                  Cost             Cost/Output

Lasik                                           13                  ________          ________          ________            ________

Photorefractive keratectomy          10                  ________          ________          ________            ________

Lens implants                               22                  ________          ________          ________            ________

Cataract surgery                           18                  ________          ________          ________            ________

Vitrectomy                                   26                  ________          ________          ________            ________

Non-productive time                                          ________          ________          ________            ________

            Total                                                         46,080                                  $2,000,000

Construct an activity-based budget based on the cost per output calculated in part 2 with a 3% inflation factor, the forecasted output below, and assuming non-productive time can be reduced to $300,000.

                                                Forecasted       (cost/output*1.03)

Surgery                                   Quantity         Budget Standard                Budget

Lasik                                        865                  ________                      ________

Photorefractive keratectomy       500                  ________                      ________

Lens implants                            530                  ________                      ________

Cataract surgery                        270                  ________                      ________

Vitrectomy                                245                  ________                      ________

Non-productive time                                                                              $300,000

            Total                                                                                         ________

Answer 1

Answer:

1. Cost per output:- Total cost is $2,000,000. It can be calculated as below: Total allocated cost %ge time devoted Quantity of (2,000,000 BI100) Total output Cost per output (DIE) Type of surgery Price (A) (B) Lasik Photo-Kerat Lens implants cataract vitrectomy Total surgery (C) (D) 800 700 1000 900 1200 30 20 25 15 10 100 847 491 523 264 239 2364 677600 0.8854781582 343700 1.163805644 523000 0.9560229446 237600 1.262626263 286800 0.6973500697 500000 2068700 Lasik, lens-implants and vitrectomy surgeries' costs are less than their output. Thus, their prices cover their cost. Photorefrective carectomy and cataract surgeries' costs are higher then their output thus, their prices dont cover their costs.

3. the budgeted standard at 3% Inflation is calculated as below: Cost per output Quantity of Price per Total output calculated in Budgeted cost Type of surgerysurgery (A) surgery (B) (A"B) (C) Lasik Photo-Kerat Lens implants cataract part 2 (D) B1.03 (E)(C*E) 865 500 530 270 245 800 700 1000 900 1200 692000 350000 530000 243000 294000 0.71 0.62 0.95 0.86 0.94 0.7313 0.6386 0.9785 0.8858 0.9682 506059.6 223510 518605 215249.4 2846508 300,000 2048074.8 Non-productive Total 2410 2109000 non productive cost is given in the problem. Thus, budgeted output will be S2,109,000 and budgeted cost will be $2,048,075.