bgQuiz 2- CVP

A. The St. Paul Hospital records provide the following patient mix data for the year:
Patient Mix
Self Pay (Personal) 20%
Private Insurance 25%
Philhealth Insurance 30%
GSIS Insurance 25%

Average Daily Rate Ave. Daily Variable Cost

Self Pay (Personal) P200 P60
Private Insurance 200 60
Philhealth Insurance 150 60
GSIS Insurance 150 60

The annual fixed costs is P1,290,000.

Required: Compute the break even point in Pesos and in patient days

B. The Mount Sinai Hospital is unionized. In 2012 nurses received an average annual salary of
$37,000. The hospital administrator is considering how the contract with nurses should be
changed for 2013. In turn, the charging of nursing costs to each department might also be
changed. Each department is accountable for its financial performance. Revenues and expenses
are allocated to departments.
Consider the expenses of the Obstetric department in 2012:
Variable expenses (based on patient-days) are:
Meals $320,000
Laundry 160,000
Laboratory 700,000
Pharmacy 400,000
Maintenance 50,000
Others 130,000
Total $1,760,000

Fixed expenses (based on number of beds) are:

Rent $2,000,000
General and Administrative 1,500,000
Janitorial 100,000
Maintenance 100,000
Others 200,000
Total $3,900,000

Nurses are assigned to departments on the basis of annual patient-days, as follows:

Patient Days Number of Nurses

10,000-12,500 30
Over 12,500 35

Total patient-days are the number of patients multiplied by the number of days they are
hospitalilzed.
During 2012, the Obstetrics Department had a capacity of 60 beds, billed each patient an
average of $500 per day, and had revenues of $8 million.

Required:
1. Compute the 2012 volume of activity in patient-days
2. Compute the 2012 patient-days that would have been necessary for the Obstetrics
department to recoup all fixed expense except nursing expenses.
 3. Compute the 2012 patient-days that would have been necessary for the Obstetrics
department to break-even
4. The head of the Obstetrics department is considering offering the nursing center a nursing
rate of 120 per patient-day. This plan would replace the two-level system employed in 2012.
Compute what the break-even point in patient-days would have been in 2012 under this
plan.

C. All-Candy Company is a wholesale distributor of candy. The company services grocery,

convenience, and drug stores in large metropolitan area.

Small but steady growth in sales has been achieved by the All-Day Candy Company over the past
few years while candy prices have been increasing. The company is formulating its plans for the
coming fiscal year. Presented below are the data used to project the current year’s after-tax net
income of $110,400.

Average selling price per box $4.00

Average variable costs per box:
Cost of candy 2.00
Selling expenses 0.40
Annual fixed costs:
Selling 160,000
Administrative 280,000
Expected annual sales volume
(30,000 boxes) 1,560,000
Tax rate 40%

Manufacturers of candy have announced that they increase prices of their products an average
of 15% in the coming year, owing to increase in raw materials (sugar, cocoa, peanuts, etc.) and
labor costs. All-Day Candy Company expects that all other costs will remain at the same rates or
levels as in the current year.

Required:
1. What is the All-Day Candy Company’s beak-even point in boxes of candy for the
current year?
2. What selling price per box must All-Day Candy Company charge to cover the 15%
increase in the cost of candy and still maintain the current contribution margin
ratio?
3. What volume of sales in dollars must All-Day Candy Company achieve in the coming
year to maintain the same net income after taxes as projected for the current year if
the selling price of candy remains at $4 per box and the cost of candy increases by
15%?. (CMA Adapted)