Question 2

Breakeven Point= Fixed Cost/Contribution Margin

Fixed Cost Bed capacity Because I'm assuming our Annual Patient Days is 20,000 ($6,000,000/$300), I went with the first option in the table (up to 21,900), so 20 Aides, 10 Nurses, and 4 Supervising Nurses Aides Nurses Supervising Nurses TOTAL

Fixed Cost Contribution Margin= Sales - Variable Cost

Variable Cost I don't believe we can just take a total variable cost, but rather we need to break it by number of patient days. Total variable cost $2,000,000/20,000 (6,000,000/$300), that's $100 per patient day

Our revenue per patient Therefore our unit contribution margin (page 326 and 327 in our textbook) per patient day CM= $300-$100= $200 Now for our Breakeven Point:

Question 3 If additional 20 beds added for 90 days (100% capacity on 90 days) :

Increase in revenue

20 additional beds * 90 days * $300/ day

Increase in costs Fixed Expenses $2,900,000/60 beds = $48,333.33 * 20 add. Beds

Variable Expenses 20 additional beds * 90 Days * $100 (total variable cost/patient day) Salaries expenses: Annual patient days 20 additional beds for 90 days = 1800 additional patient days 1800 + 20,000 = Total of 21,800 patient days (no additional staffing needed) Total Expenses $966,666.67 + $180,000 =

$540,000 (revenue for additional 20 beds rental) - $1,246,666.67 (expenses) = If pediatrics rents this extra capacity from Melford Hospital for 20 beds, they would actually experience the net decrease in their earnings.

Schedule of Increase

Patient Days Revenue - Variable Costs = Total Contribution Margin - Fixed Costs = Operating Profit

$2,900,000

$9,000*20 $20,000*10 $25,000*4

$180,000.00 $200,000.00 $100,000.00 $480,000.00

$3,380,000.00

$300 (per day, per bed)

$3,380,000/$200=16,900 patient days to break even

$540,000.00

$48,333.33 per bed $966,666.67

$ 180,000.00

$1,146,666.67

-$606,666.67

2002 2003 Amount Percent Amount Percent 20,000 21,800 $6,000,000 100% $6,540,000 100% $2,000,000 33% $2,180,000 33% $4,000,000 66% $4,360,000 66% $3,380,000 $ 4,346,666 $620,000 $ 13,334