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 4,400 patient days. Costs for these two levels of activity output are as follows: 4,100 Patient Days 4,400 Patient Days Salaries, nurses $ 58,400 $ 58,400 Aides 31,800 31,800 Pharmacy 228,500 243,800 Laboratory 127,700 135,500 Depreciation 27,800 27,800 Laundry 211,970 227,480 Administration 27,700 27,700 Lease (equipment) 33,800 33,800 Required: 1. Classify each cost as fixed, variable, or mixed, using patient days as the activity driver. Assume that the Pharmacy & Laboratory are “in house” and that the Laundry is “shipped out” to a third party vendor. Salaries, nurses Aides Pharmacy Laboratory Depreciation Laundry Administration Lease (equipment) 2. Use the high-low method to separate the mixed costs into fixed and variable. Laboratory: Pharmacy: Variable $fill in the blank 9 per patient day $fill in the blank 10 per patient day Fixed $fill in the blank 11 $fill in the blank 12 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. $fill in the blank 13 Charge per patient day How much of this charge is variable? $fill in the blank 14 Variable charge per patient day How much of the charge per patient day is fixed? $fill in the blank 15 Fixed charge per patient day 4. Suppose the orthopedic center averages 4,600 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. $fill in the blank 16 per patient day The main reason why the charge per patient day decreased as the activity output increased is because:
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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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 4,400 patient days. Costs for these two levels of activity output are as follows:
4,100 Patient Days 4,400 Patient Days Salaries, nurses $ 58,400 $ 58,400 Aides 31,800 31,800 Pharmacy 228,500 243,800 Laboratory 127,700 135,500 Depreciation 27,800 27,800 Laundry 211,970 227,480 Administration 27,700 27,700 Lease (equipment) 33,800 33,800
Required:
1. Classify each cost as fixed, variable, or mixed, using patient days as the activity driver. Assume that the Pharmacy & Laboratory are “in house” and that the Laundry is “shipped out” to a third party vendor.
Salaries, nurses Aides Pharmacy Laboratory Depreciation Laundry Administration Lease (equipment) 2. Use the high-low method to separate the mixed costs into fixed and variable.
Laboratory: Pharmacy: Variable $fill in the blank 9 per patient day $fill in the blank 10 per patient day Fixed $fill in the blank 11 $fill in the blank 12 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.
$fill in the blank 13 Charge per patient day
How much of this charge is variable?
$fill in the blank 14 Variable charge per patient day
How much of the charge per patient day is fixed?
$fill in the blank 15 Fixed charge per patient day
4. Suppose the orthopedic center averages 4,600 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.
$fill in the blank 16 per patient day
The main reason why the charge per patient day decreased as the activity output increased is because:
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