Assume that managers of Fort Winston Hospital are setting the price on a new out
ID: 2652041 • Letter: A
Question
Assume that managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data estimates: Variable cost per visit $5.00 Annual direct fixed costs $500,000 Annual overhead allocation $50,000 Expected annual utilization 10,000 visits.
b. Repeat Part a, but assume that the variable cost per visit is $10.
c. Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000.
d. Repeat Part a assuming both a $10 variable cost and $1,000,000 in direct fixed costs.
Explanation / Answer
A) Price of the patient service = Total variable cost + Direct fixed cost + overhead allocation / Number of visit
= ( 10000*5) +500000+50000 /10000 i.e 60 per visit
B) (10000*10)+500000+50000/10 i.e 65 per visit
C) (10000*5)+1000000+50000/10 i.e 110 per visit
D) (10000*10)+1000000+50000/10 i.e 115 per visit