Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

Question

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Answer 1

Question

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

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Answer 2

Question

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

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Answer 3

Question

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

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Answer 4

Question

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

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Answer 5

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

Answer 6

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

Answer 7

Chapter 13, Problem 40P

1.

To determine

Compute the target cost that will be required for HMO, V-MD to maintain its current market share and profit per enrollee in 2016.

Answer 8

1.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

Market share is the percentage of a given company's total sales in an industry. It is calculated by taking sales from the company over the period and dividing them over the same period by total sales from the industry.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales / marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

Age	Enrollment in 2016	Projected Enrollment in 2017	Average Monthly Cost in 2016	Avg Cost in 2016	Avg Cost in 2017 (+7%)	Projected Cost in 2017	Age % in 2017	Age % in 2017
1 to 4	45,688	48,977	$ 11,147,872	244.00	261.08	$ 12,786,915	4.5%	4.6%
5 to 14	82,456	84,663	10,059,632	122.00	130.54	11,051,908	8.1%	8.0%
15 to 19	95,873	95,887	8,436,824	88.00	94.16	9,028,720	9.4%	9.1%
20 to 24	66,246	67,882	9,539,424	144.00	154.08	10,459,259	6.5%	6.4%
25 to 34	133,496	132,554	26,432,208	198.00	211.86	28,082,890	13.0%	12.5%
35 to 44	166,876	175,446	38,882,108	233.00	249.31	43,740,442	16.3%	16.6%
45 to 54	85,496	90,889	22,741,936	266.00	284.62	25,868,827	8.4%	8.6%
55 to 64	99,624	101,923	28,691,712	288.00	308.16	31,408,592	9.7%	9.6%
65 to 74	156,288	161,559	49,518,144	316.84	339.02	54,771,377	15.3%	15.3%
75 to 84	67,895	72,465	33,432,760	492.42	526.89	38,180,931	6.6%	6.8%
85 years and older	23,499	26,849	24,286,475	1,033.51	1,105.86	29,691,148	2.3%	2.5%
TOTAL	1,023,437	1,059,094	$263,169,095			$295,071,009	100.0%	100.0%
			1,023,437			1,059,094
Average Cost			$ 257.14			$ 278.61

Current Price			$ 368.00
Current Profit Per Enrollee (Desired Profit)			$ 110.86	= 368 − 257.14		$ 110.86
New Market Price			$ 325.00			$ 350.00
Target Cost			$ 214.14	=325 − 110.86		$ 239.14
Required Cost Reduction Per Enrollee						$ 39.47	=$278.61− $239.14

The average cost is $257.14 = $263,169,095 ÷1,023,437. The current profit per enrollee is $368 − $257.14 = $110.86. Hence, the target cost is $214.14 = $325 − $110.86 to maintain the same contribution per enrollee.

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.

Answer 13

2.

To determine

Compute the new target cost for the HMO, V-MD, assuming that the organization wants to maintain the same profit per enrollee as in 2016.

Answer 14

2.

Expert Solution

Explanation of Solution

The profit margin is the ratio of the profit (sales minus all expenses) of an enterprise divided by its revenue. It relates profit with sales and informs how well the company overall handles its finances. It's often expressed as a percent.

The cost life cycle is a series of the company's activities that initiate with research and development followed by design, production, sales/marketing, and customer services.

A technique in which, given a competitive market price, the company determines the allowable (i.e., target) cost of the product or service, so the company can earn a desired profit. The formula to calculate the target cost is as follows:

Target cost = Competitive price – Desired profit

The target cost for 2017 is $239.14 = $350 − $ 110.86; this calculation uses the new price per enrollee and the same profit as in 2016. The required cost reduction per enrollee is $39.47, as indicated. The cost per inscriber is computed by applying the average cost per inscription for each age group to determine the total cost of $295,071,009. This number differs from the simple approach of 1,059,094 for 2016 cost of $257.14 = $291,401,178 for 2017 enrollment. The explanation for the disparity is that the enrollee sales mix has changed from 2016 to 2017 and, in particular, the two oldest age groups, the most expensive groups, have slightly increased in number and percentage.