Answer Happy

Case 7-53 Break-Even Analysis; Hospital CVP Relationships (LO 7-1, 7-4) Delaware Medical Center operates a general hospital. The medical center also rents space and beds to separately owned entities rendering specialized services, such as Pediatrics and Psychiatric Care. Delaware charges each separate entity for common services, such as patients' meals and laundry, and for administrative services, such as billings and collections. Space and bed rentals are fixed charges for the year, based on bed capacity rented to each entity. Delaware Medical Center charged the following costs to Pediatrics for the year ended June 30, 20x1: Dietary Janitorial Laundry Laboratory Pharmacy Repairs and maintenance General and administrative Rent Billings and collections. Total Annual Patient Days: Up to 22,000 Patient Days Bed Capacity (variable) $ 580,000 (fixed) 22,001 to 26,000 26,001 to 29, 200 270,000 420,000 310,000 300,000 $1,880,000 Aides Nurses 20 10 25 14 31 16 During the year ended June 30, 20x1, Pediatrics charged each patient an average of $300 per day, had a capacity of 50 beds, and had revenue of $5 million for 365 days. In addition, Pediatrics directly employed personnel with the following annual salary costs per employee: supervising nurses, $25,900; nurses, $20,400; and aldes, $8,300. Delaware Medical Center has the following minimum departmental personnel requirements, based on total annual patient days: Supervising Nurses $ 455 78,000 36,000 1,380,000. 1,530,000 $3,024,000
Pediatrics always employs only the minimum number of required personnel. Salaries of supervising nurses, nurses, and aides are therefore fixed within ranges of annual patient days. Pediatrics operated at 100 percent capacity on 85 days during the year ended June 30, 20x1. Administrators estimate that on these 85 days, Pediatrics could have filled another 10 beds above capacity. Delaware Medical Center has an additional 10 beds available for rent for the year ending June 30, 20x2. Such additional rental would increase Pediatrics' fixed charges based on bed capacity. (In the following requirements, ignore income taxes.) Required: 1. Calculate the minimum number of patient days required for Pediatrics to break even for the year ending June 30, 20x2, if the additional 10 beds are not rented. Patient demand is unknown, but assume that revenue per patient day, cost per patient day, cost per bed, and salary rates will remain the same as for the year ended June 30, 20x1. 2. Assume that patient demand, revenue per patient day, cost per patient day, cost per bed, and salary rates for the year ending June 30, 20x2, remain the same as for the year ended June 30, 20x1. Prepare a schedule of Pediatrics' increase in revenue and increase in costs for the year ending June 30, 20x2. Determine the net increase or decrease in Pediatrics' earnings from the additional 10 beds if Pediatrics rents this extra capacity from Delaware Medical Center. Complete this question by entering your answers in the tabs below. Prev 1 of 3 Next >