Breakeven Analysis for a New Service and Calculating Added Net Revenue from Improved Service Quality - Accounting and Finance Assignment Help

Assignment Task

1) Using the following performance data, calculate the volume adjusted labor rate variance and volume adjusted efficiency variance. The department is considered 20% variable.

2) You can charge $1,200 for a new service for which annual demand is anticipated to be 9,000 units. Your business can handle 7,300 procedures per year. The business will be covered by five payers: program 1 will cover 80% of charges for 5% of the patients; program 2 will pay 70% of charges for 15% of the patients, program 3 will pay 60% 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 $5,000,000. Variable cost per unit of service is $354. Use breakeven analysis (including capacity) to determine if this program opportunity should be pursued. Explain your reasoning.

3) Use the data presented below to determine the benefit/cost ratio, the net present value, and the average payback period for the proposed equipment acquisition. Then, decide whether the opportunity should be pursued.

New instrumentation that can perform 250,000 tests per year has a purchase price of $2,500,000. In addition, installation will cost $500,000. The manufacturer includes maintenance for the first year in the purchase price of the instrument. Thereafter, it will cost $20,000 per year for a maintenance contract.

The instrument will generate added test volume at a rate of 150,000 tests in the first year. This amount will increase annually by 30,000 tests/year. You can charge $4 per test with a collection rate of 75%. In addition, you will be able to reduce the workforce by 14 FTEs each of which is paid $25,000/year. The fringe benefits rate for workers is 25%. The hurdle rate for this opportunity is 4%

4) Your Health Ministry clinics offer five different services each of which consumes different amounts of resources as displayed in this table:

You have been asked by the Ministry to develop a single RVU scheme to track your service activity. Based on the information provided, develop the single relative value scheme that you will recommend to the Ministry for adoption at the clinics.

5) You have the following data for January 1 – May 31 of this fiscal year with which to prepare an expense forecast. Fixed expenses were $3,750,000 and variable expenses were $400,000. During the first five months of the year, $1,500,000 of fixed expense money was spent on preparing for a one-time WHO survey. Volume through May 31 has been 20,000 visits. It is anticipated that monthly volume will be 3,000 visits per month in the remaining part of the year. Also, two new practitioners are expected to join the staff, starting work on November 1st. They each earn $150,000 per year plus fringe benefits of 20%.

6) You have learned that a new approach to treating patients will result in a quality-driven decrease in average length of stay from the current five days to four days. All the revenue in your 200-bed hospital is case based. Net revenue is $30,000 per case. The occupancy rate is 90%. If new patients will immediately occupy any beds that are emptied because of the improvement in service quality, how much added net revenue will you generate in a full year because of this improvement?

7) You are considering the acquisition of a new piece of technology with an upfront purchase price of $3.200,000. You have done the analysis and determined that the present value of the benefit is $2,634,000 (the benefit: cost ratio after present valuation is 0.82). What is the maximum price would you be willing to offer the vendor for the piece of equipment?

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