Add or drop decision. The Ancome County Health Department is considering using 3

Question

Add or drop decision. The Ancome County Health Department is considering using 300 square feet of excess office space to provide a clinic for Healthchek visits. These visits are reimbursed at $67.30 under a Medicaid program. Variable costs per visits are $53.30, and providing the service requires an additional physician assistant and nurse with prorated salaries of $90,000 and $50,000, respectively. The state has mandated efforts to increase the utilization of Medicaid eligibility, so the Department of Social Services is conducting interventions to increase eligibility awareness in the community. As a result, the health department expects 10,000 Healthchek visits in the coming year. Unavoidable overhead costs for the health department are $300,000 per year and will be allocated to each program based on its proportional share of the health department

Explanation / Answer

total contribution margin = 67.30*10,000 =$673000 total product margin = (53.30*10000) + 90000+50000 +(300000*300/2700) = $706333.33 Considering the product margin ,health department will be in loss if it goes with the program.So, it should opt for another program that will not put the dept. in loss.

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