Question

24-6. Hospltal but rents space department break-even analysis. Hillsboro Hospital operates a general hospital e and beds to separate entities for specialized areas such as pediatrics, matern ity c. The hospital charges each separate entity for common services such as patien y and for administrative services such as billings and collections. All uncollect bed meals adr charged directly to the entity Space and bed rentals are fixed for the year ts ible For the fiscal year ended Jun a revenue of $1,138,800 30, 19A, were e 30, 19A, the Pediatrics Department charged each patient of $65 per day, had a capacity of 60 beds, operated 24 hours per day for 365 days, and had an enses charged by the hospital to the Pediatrics Department for the fiscal year ended June BAS S OF ALLOCATION Patienf Days Bed Cepacity Venable) S 42,952 Janitorial... Laundry.. Laboratory (other than direct charges to patients) Pharmacy Repairs and maintenanc. General administrative service Rent. S 12,800 28.000 47.800 33.800 5,200 7.140 131,760 275.320 Billings and collections. Uncollectible accounts expense Other expense....r18.048 40,000 47,000 25,980 $262 800 $453,000 The only personnel directly employed by the Pediatrics Department are supervising nurses hrses, and aides. The hospital has minimum departmental personnel requirements based on total tnnual patient days. Hospitai requirements beginning at the minimum expected level of operations were as follows UPERVISING NURSES ANNUAL PATIENT DAYS 10.000-14,000 14.001-17,000 17,001-23,725 23,726-25,550 25,551-27,375 27,376-29,200 ADES 21 12 14 14 16 26 29 ploys only t levels represent fulltime equivalents, and the Pediatrics Department always e ng the mini Requlred: The mear eent 1 er patient day, and aides are therefore fixed within ranges of or employee are: supervising nurses, $21,000: nurses, $16,000; and aides, $8,000 e minimum number of patient days n mum number of required fulltime equivalent personnel. Salaries of sup annual patient days. Annual salaries he fiscat, Cost per patient day, cost per bed, and employee salary rates will remain the same (AICPA adapted) minimum number of patient days necessary for the Pediatrics Department to break 30, 19B. Patient demand is unknown, but assume that reven e fiscal year ending June cal year ended June 30, 19A.

Answer 1

Formula to compute break even (units) = Fixed cost / ((Revenue/unit)-(Variable cost/unit))

                                                         = {($453,000+$468,000)**} / { ($65*60 beds) – ($262,800 (given in the question) /292 days****)

                                                          = $921,000 / $3000

                                                           = 307 days

To achieve break even no of days should be 307 days approx..

** Computation of Fixed cost:

Add following fixed cost to get total fixed cost:

• Fixed cost (from Basis of Allocation table) = $453,000
• Fixed cost of nurses, aides, supervising nurses *** = $468,000

*** Computation of Fixed cost of Nurses, Aides & Supervising Nurses is as follows:

To proceed further we will have to compute Patient days or Bed days. So Patient days or Bed days = $1,138,800/ $65 = 17,520

Now look at the table of Annual Patient Days and see at which range/category does 17,520 comes. It comes under third (from top) category. For this category details are as follows:

No of Nurses = 13

No of aides = 22

No of supervising Nurses = 4

So now we will multiply above numbers by the rates to arrive at the fixed cost of nurses, aides and supervising nurses, as follows:

Fixed cost of Nurses = 13 x $16,000 = $208,000

Fixed cost of Supervising Nurses = 4 x $21,000 = $84,000

Fixed cost of aides = 22 x $8000 = $ 176,000

Computation of Fixed cost of Nurses, Aides & Supervising Nurses is the sum of above listed balances i.e = $208,000+$84,000+$176,000 = $468,000

**** Computation of 292 days = $1,138,800 / ($65 x 60) = 292 days - This represents the no of days for which beds were used