Homework Help is Here – Start Your Trial Now!
Business
Accounting
recommen o. Expand-or-reduce decision. Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has re cently had a study conducted and has determined that her costs for these contracts are $60,000 of which $10,000 is the variable cost of supplies. The rest is nonavoidable fixed cost. She cur rently charges an average of $35 per test. She is thinking of lowering her price by 10 percent hopes of raising her current volume of 30,000 tests by 30 percent. If she does so, she expects he variable cost per test will go up by 5 percent. Determine the current and predicted (a) revenues (b) variable costs, and (c) total contribution margin and product margin. What should she recommended to do? Why?

recommen o. Expand-or-reduce decision. Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has re cently had a study conducted and has determined that her costs for these contracts are $60,000 of which $10,000 is the variable cost of supplies. The rest is nonavoidable fixed cost. She cur rently charges an average of $35 per test. She is thinking of lowering her price by 10 percent hopes of raising her current volume of 30,000 tests by 30 percent. If she does so, she expects he variable cost per test will go up by 5 percent. Determine the current and predicted (a) revenues (b) variable costs, and (c) total contribution margin and product margin. What should she recommended to do? Why?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Please Complete Answer step by Step

Textbook is financial management of healthcare organizations fifth edition. I need help! recommen c o. Expand-or-reduce decision. Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has re cently had a study conducted and has determined that her costs for these contracts are $60,000 of which $10,000 is the variable cost of supplies. The rest is nonavoidable fixed cost. She cur rently charges an average of $35 per test. She is thinking of lowering her price by 10 percent in hopes of raising her current volume of 30,000 tests by 30 percent. If she does so, she expects he variable cost per test will go up by 5 percent. Determine the current and predicted (a) revenues (b) variable costs, and (c) total contribution margin and product margin. What should she b recommended to do? Why? Show Transcribed Text
Transcribed Image Text:Textbook is financial management of healthcare organizations fifth edition. I need help! recommen c o. Expand-or-reduce decision. Janet Gilbert is director of a lab. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has re cently had a study conducted and has determined that her costs for these contracts are $60,000 of which $10,000 is the variable cost of supplies. The rest is nonavoidable fixed cost. She cur rently charges an average of $35 per test. She is thinking of lowering her price by 10 percent in hopes of raising her current volume of 30,000 tests by 30 percent. If she does so, she expects he variable cost per test will go up by 5 percent. Determine the current and predicted (a) revenues (b) variable costs, and (c) total contribution margin and product margin. What should she b recommended to do? Why? Show Transcribed Text
REVIEW QUESTIONS AND PROBLEMS Reduce-or-expand decision. The administrator of ABC Hospital, Mr. Stevens, has just received the latest financial report, and the news is not good. The hospital has been losing money for over a year, and if things don't Improve it may lose its AA bond rating. Stevens has met with his vice president of finance, Mr. Sanger, and has asked him to identify areas for cutting costs. beginning with services that are operating at a loss. The following information is for services provided at ABC Hospital's ambulatory care clinic: Annual volume (in patient visits) Charge per visit Variable cost per visit Fixed costs Transcribed Text 455 8,000 $165 550 $600,000 a. Suppose that all fixed costs are avoidable. What should Sanger recommend to Stevens re- garding dropping the clinic? b. What if only $300,000 of the fixed costs were avoldable? Would this change his recommendation? c. Are there any other considerations that should be taken into account when making this decision? Health Department is considering using 300 Break-even. Sure Care Health Maintenance Organization is seeking a managed care contract with a local manufacturing plant. Sure Care estimates that the cost of providing preventive and curative care for the 700 employees and their families will be $150,000 per month. The manu facturing company offered Sure Care a premium bid of $350 per employee per month. a. If Sure Care accepts this bid and contracts with the manufacturing firm, will Sure Care eam a profit or loss for the year? How much? b. What premium per employee per month does Sure Care need to break even? c. If Sure Care wants to earn $190,000 in profit for the year, what is the required premium per employee per month? d. What concerns Sure Care in this analysis?
Transcribed Image Text:REVIEW QUESTIONS AND PROBLEMS Reduce-or-expand decision. The administrator of ABC Hospital, Mr. Stevens, has just received the latest financial report, and the news is not good. The hospital has been losing money for over a year, and if things don't Improve it may lose its AA bond rating. Stevens has met with his vice president of finance, Mr. Sanger, and has asked him to identify areas for cutting costs. beginning with services that are operating at a loss. The following information is for services provided at ABC Hospital's ambulatory care clinic: Annual volume (in patient visits) Charge per visit Variable cost per visit Fixed costs Transcribed Text 455 8,000 $165 550 $600,000 a. Suppose that all fixed costs are avoidable. What should Sanger recommend to Stevens re- garding dropping the clinic? b. What if only $300,000 of the fixed costs were avoldable? Would this change his recommendation? c. Are there any other considerations that should be taken into account when making this decision? Health Department is considering using 300 Break-even. Sure Care Health Maintenance Organization is seeking a managed care contract with a local manufacturing plant. Sure Care estimates that the cost of providing preventive and curative care for the 700 employees and their families will be $150,000 per month. The manu facturing company offered Sure Care a premium bid of $350 per employee per month. a. If Sure Care accepts this bid and contracts with the manufacturing firm, will Sure Care eam a profit or loss for the year? How much? b. What premium per employee per month does Sure Care need to break even? c. If Sure Care wants to earn $190,000 in profit for the year, what is the required premium per employee per month? d. What concerns Sure Care in this analysis?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Relevant cost analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS