Problem # 1

General Hospital, a not- for profit acute care facility, has the following cost structure for its inpatients services:

Fixed Costs $10,000,000
Variable cost per inpatient day $200
Charge (revenue) per inpatient day $1,000
The hospital expects to have a patient load of 15,000 inpatient days next year.

Questions to be answered:

a) Construct the hospital's base case projected P&L statement.
b) What is the hospital's breakeven point?
c) What volume is required to provide a profit of $ 1,000,000? A profit of $500,000?
d) Now assume that 20 % of the hospital's inpatient days come from a managed care plan that wants a 25% discount from charges. Should the hospital agree to the discount proposal?

Problem # 2

You are considering starting a walk-in clinic. Your financial projections for the first of operations are as follows:

Revenues (10,000 visits) $ 400, 000
Wage and benefits $ 220,000
Rent $ 5,000
Depreciation $ 30,000
Utilities $ 2,500
Medical Supplies $ 50,000
Administrative supplies $ 10,000

Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 30 % rate.

Questions to be answered:

a) Construct the clinics projected P&L statement.
b) What # of visits is required to break even?
c) What # of visits is required to provide you with an after-tax profit of $ 100,000?