You can charge $2,000 for a new service for which annual demand is anticipated to be 9,500 units. Your business, which operates 365 days a year, is able to handle 30 procedures per day. The business will be covered by five payers: program 1 will cover 90% of charges for 5% of the patients; program 2 will pay 85% of charges for 15% of the patients, program 3 will pay 80% of charges for 20% of the patients, program 4 will pay 80% of charges for 10% of the patients, and program 5 will pay 90% of charges for 50% of the patients. The new service has annual fixed costs of $6,000,000. The variable cost per unit of service is $396. Use breakeven analysis to determine if this program opportunity should be pursued. Explain your reasoning.

You can charge $2,000 for a new service for which annual demand is anticipated to be 9,500 units. Your business, which operates 365 days a year, is able to handle 30 procedures per day. The business will be covered by five payers: program 1 will cover 90% of charges for 5% of the patients; program 2 will pay 85% of charges for 15% of the patients, program 3 will pay 80% of charges for 20% of the patients, program 4 will pay 80% of charges for 10% of the patients, and program 5 will pay 90% of charges for 50% of the patients. The new service has annual fixed costs of $6,000,000. The variable cost per unit of service is $396. Use breakeven analysis to determine if this program opportunity should be pursued. Explain your reasoning.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter17: Activity Resource Usage Model And Tactical Decision Making

Section: Chapter Questions

Problem 6E: Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of...

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