Question

eBook Calculator Cost Behavior, High-Low Method, Pricing Decision St. Teresa's Medical Center (STMC) offers a number of specialized medical services, including neuroscience, cardiology, and oncology. SIMC's strong reputation for quality medical care allowed it to branch out into other services. It is now ready to expand its orthopedic services and has just added a free-standing orthopedic clinic offering a full range of outpatient, surgical and physical therapy services. The cost of the orthopedic facility is depreciated on a straight line basis. All equipment within the facility is based Since the clinic had no experience with in patient orthopedic services (for patients recovering from hip and knee replacements, for example), I decided to operate the orthopedie center for two months before determining how much to charge per patient day on an ongoing basis. As a temporary measure, the dini adopted a patient.day charge of $190, an amount equal to the fees charged by a hospital specializing in orthopedic care in a nearby city, This initial per day charge was quoted to patients entering the orthopedic center during the first two months with assurances that if the actual operating costs of the new center justified it, the charge could be less. In no case would the charges be more. A temporary policy of billing after 60 days was adopted so that any adjustments could be made. The orthopedic center opened on January 1. During January, the center had 4,200 patient days of activity. During February, the activity was 4,600 patient days. Costs for these two levels of activity output are as follows: 4,200 Patient 4,600 Patient Days Days Salaries, nurses $ 52,500 $ 52,500 Aides 31,100 31,100 266,600 Pharmacy 245,000 104,500 112,500 Laboratory Depreciation 23,400 23,400 214,620 235,060 Laundry Check My Work 4 more Check My Work uses remaining Save and Submit Assignment for Grading 5:25 PM

Answer 1

1)

Salaries, nurses	Fixed
Aides	Fixed
Pharmacy	Mixed
Laboratory	Mixed
Depreciation	Fixed
Laundry	Variable
Administration	Fixed
Lease (equipment)	Fixed

2) Calculation of Fixed and variable cost

Laboratory

Variable cost= Change in laboratory cost/Change in patients

= ($112500-104500)/(4600-4200)

= $20 per patient day

Fixed cost= Total cost-Variable cost

= $112500-($20*4600)

= $20500

Pharmacy

Variable cost= Change in laboratory cost/Change in patients

= ($266600-245000)/(4600-4200)

= $54 per patient day

Fixed cost= Total cost-Variable cost

= $266600-($54 *4600)

= $18200

	Laboratory:		Pharmacy:
Variable	$20	per patient day	$54	per patient day
Fixed	$20500		$18200

3) Total fixed costs= Salaries, nurses+Aides+Pharmacy+Laboratory+Depreciation+Administration+Lease (equipment)

= $52500+31100+18200+20500+23400+28900+30100

= $204700

Fixed charge per patient day= $204700/4300= $47.60

Laundry cost per unit= $214620/4200= $51.1

Variable charge per patient day= Laboratory+Pharmacy+Laundry

= $20+54+51.1= $125.1

Total cost charge per patient day= $47.60+125.1= $172.70

$172.70

Charge per patient day

$125.1

Variable charge per patient day

$47.60

Fixed charge per patient day

4) Fixed charge per patient day= $204700/4900= $41.78

Variable charge per patient day= Laboratory+Pharmacy+Laundry

= $20+54+51.1= $125.1

Total cost charge per patient day= $41.78+125.1= $166.88

$166.88

per patient day

5) When the activity output is increased the charge per patient day decreased because fixed charge per patient day will reduced.

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