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. STMC'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 leased. Since the clinic had no experience with in-patient orthopedic services (for patients recovering from hip and knee replacements, for example), it decided to operate the orthopedic center for two months before determining how much to charge per patient day on an ongoing basis. As a temporary measure, the clinic 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 4,100 patient days of activity. During February, the activity was 4,500 patient days. Costs for these two levels of activity output are as follows: 4,100 Patient Days 4,500 Patient Days Salaries, nurses $ 54,600 $ 54,600 Aides 32,100 32,100 Pharmacy 257,700 281,300 Laboratory 131,300 141,700 Depreciation 27,800 27,800 Laundry 188,600 207,000 Administration 28,200 28,200 Lease (equipment) 37,900 37,900 Required: 2. Use the high-low method to separate the mixed costs into fixed and variable. Laboratory: Pharmacy: Variable Fixed 3. The administrator of the orthopedic center estimated that the center will average 4,300 patient days per month. If the center is to be operated as a nonprofit organization, determine the amount it will need to charge per patient day? Round your interim calculations and final answers to the nearest cent. Charge per patient day? How much of this charge is variable? __________Variable charge per patient day? How much of the charge per patient day is fixed? __________Fixed charge per patient day 4. Suppose the orthopedic center averages 4,900 patient days per month. How much would need to be charged per patient day for the center to cover its costs? Round your answer to the nearest cent. __________per patient day
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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. STMC'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
Since the clinic had no experience with in-patient orthopedic services (for patients recovering from hip and knee replacements, for example), it decided to operate the orthopedic center for two months before determining how much to charge per patient day on an ongoing basis. As a temporary measure, the clinic 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 4,100 patient days of activity. During February, the activity was 4,500 patient days. Costs for these two levels of activity output are as follows:
| 4,100 Patient Days | 4,500 Patient Days | |||
| Salaries, nurses | $ | 54,600 | $ | 54,600 |
| Aides | 32,100 | 32,100 | ||
| Pharmacy | 257,700 | 281,300 | ||
| Laboratory | 131,300 | 141,700 | ||
| Depreciation | 27,800 | 27,800 | ||
| Laundry | 188,600 | 207,000 | ||
| Administration | 28,200 | 28,200 | ||
| Lease (equipment) | 37,900 | 37,900 |
Required:
2. Use the high-low method to separate the mixed costs into fixed and variable.
| Laboratory: | Pharmacy: | |
| Variable | ||
| Fixed |
3. The administrator of the orthopedic center estimated that the center will average 4,300 patient days per month. If the center is to be operated as a nonprofit organization, determine the amount it will need to charge per patient day? Round your interim calculations and final answers to the nearest cent.
Charge per patient day?
How much of this charge is variable?
__________Variable charge per patient day?
How much of the charge per patient day is fixed?
__________Fixed charge per patient day
4. Suppose the orthopedic center averages 4,900 patient days per month. How much would need to be charged per patient day for the center to cover its costs? Round your answer to the nearest cent.
__________per patient day
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