23. Determining charges for private pay residents. Shady Grove Nursing Home has

Question

23. Determining charges for private pay residents. Shady Grove Nursing Home has 250 residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $155 per day whereas private pay residents pay on average 90 percent of full daily charges. The admin- istrator estimates that variable cost per resident per day is $80 for supplies, food, and contracted services, and annual fixed costs are $10 million.

a. What is the daily contribution margin of each non-private pay resident?

b. If 25 percent of the residents are non-private pay, what will Shady Grove charge the private pay patients to break even?

c. What if non-private pay payors cover 50 percent of the residents?

d. The owner of Shady Grove Nursing Home insists that the facility earn $1 million in annual profits. How much must the administrator raise the per day charge for the privately insured residents if 25 percent of the residents are covered by non-private pay payors?

Explanation / Answer

23. Determining charges for private pay residents. Shady Grove Nursing Home has

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