1.) What is the marginal cost estimate of the Phase 4 hospital services, assuming that 60 percent of the designated costs are fixed and the remaining costs are variable? * The Marginal cost estimate is $ 71,468
2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?
* The current amount of patients treated for liver transplant volume totaled 120 patients annually, with a reimbursement rate of $140,000, providing the hospital with the ability to handle 30 more patients before the fixed costs would increase. 120 +30= 150. This means that the hospital can sufficiently handle a capacity of 150 patients, but after 150 at 151 the expected fixed and variable costs will change appreciably. * The total average cost $140,000 for 19 days of average length of stay- per diem of $6,000 a day this can be reduced by almost $12,000 dollars by decreasing LOS by 2 days.
3.) What fixed cost proportion is implied if the price for Phase 4 hospital services is set at $90,000? HINTS: This is an iterative process, arrived at by trying different fixed cost percentages in the template. Also, remember that the Center’s price at this point is based on the marginal (variable) cost.
* 37 % is the fixed portion that if implied for phase 4 hospital services would set services at approximately $90,0000, * 37 percent is $89,997 being the closest percentage to $90,000
4.) What must be the price if the fixed cost proportion is 50 percent? 70 percent?
* The price must be $ 79,524 at 50 percent * The price must be $ 63,412 at 70 percent 5. What if the new contract were to require new fixed costs in addition to variable costs? What would your answers to Question 1 look like if fixed costs rose 10%? 20%?
