Managing Health Services Organizations, Essay Sample

Weekly technician charges ($ 15 * 6) = $ 90

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The charges are multiplied by 6 because there are 6 days between Monday and Saturday. The charge of $ 15 per hours is also on a daily basis.

1 year has 52 weeks

Annual technician charges, ($ 90* 52) = $ 4,680

Annual fixed costs= ($ 10,000 + $ 4, 680) = $ 14, 680

Annual depreciation and the annual technician costs are fixed costs because they will be incurred regardless of whether tests are run or not.

Contribution margin

Contribution margin= selling price- variable cost

Selling price= charge per patient= $ 20 per test

Variable cost= cost of reagents= $ 2 per test

Cont. margin= $ 20-$2= $ 18 per unit

B.E.P, quantity = $ 14, 680/ $ 18 per unit

= 815.55 autoimmunity tests

= 816 tests

Question 2

There would a contribution margin of $ 13,400.

Annual net contribution

Sales revenue

Less: (Variable costs)

Contribution

Less: fixed costs

Net contribution

Annual sales,

5 tests a day from Monday- Saturday

5*6= 30 tests a week

1 year has 52 weeks,

30* 52= 1,560 tests a year

Sales revenue

$ 20/ tests

Total sales revenue a year

$20* 1,560= $ 31,200

Variable costs

$2/ test

Total variable costs= $2 * 1,560= $ 3,120

Fixed costs

Annual depreciation $ 10,000

Annual technician charges $ 4,680

Total sales revenue $ 31,200

Less: total variable costs ($ 3,120)

Contribution $ 28,080

Less: fixed assets

Annual depreciation ($ 10,000)

Annual technician costs ($ 4, 680)

Net annual contribution $ 13,400)

Question 3

Total test per year is 1,560

We assume 1 test is equal to 1 patient

Half the total patients number will be 1,560/2= 780 patients

At break even, the profit is 0

Desired profit= 0

BEP= fixed costs in total+profitmargin contributed in unit = ($ 14, 680 + 0)/ ($20-$2)

=$14,680/ $18

=815. 55 patients

= 816 patients

The laboratory will not break even on the equipment if half of the patients have Medicare coverage (Longest, Rakich, & Darr, 2000).The number of half patients of 780 is lower than 816 which is the number of patients required to break even.

We will have to do a capital budgeting analysis of the project to see if the project is worthwhile.

Application of payback formula

Payback time = Preliminary investmentCash flow AnnuallyInitial investment is the purchase cost of the Machine which is $ 50,000.

Annual cash flows

Sales revenue- expenses

We will use the number of patients who are not under Medicare in a year of 780

Annual Sales revenue 780* $20= $ 15,600

Annual Variable expenses 780* $ 2= $ -1, 560

$ 14,040

Less: technician costs $-4, 680

Total annual cash inflows $ 9,360

Depreciation is not included in the calculation as it is a non-cash expense, no actual cash is paid.

Payback period= $ 50,000/ $ 9,360= 5.34 years

The payback period is 5.34 years.

The hospital should not acquire the machine because the initial cost of investment of $ 50,000 will be recovered after 5 years which is way past the useful life of the machine of 5 years (Longest, Rakich, & Darr, 2000).

Reference

Longest, B.B., Rakich, J.S., & Darr, K. (2000). Managing health services organizations and system. Baltimore: Health Professions Press