You have been asked to establish a pricing structure for radiology on a per-proc
ID: 2652352 • Letter: Y
Question
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
Number of Budgeted Procedures
10,000
Budgeted Cost
$400,000
Desired Profit
$ 80,000
It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:
Payer
Volume %
Discount %
Blue Cross
20
4
Unity
15
10
Kaiser
10
10
Self-Pay
5
40
50%
Your supervisor recommends the following method to set the rate per procedure in order to generate the required $80,000 in profit:
Weighted Discount = (0.4 × 0.04) + (0.30 × 0.10) + (0.20 × 0.10) + (0.10 × 0.40)
= 0.106
Price = ($400,000 ÷ 10,000) + [($80,000 + 4,000 ($40.00 – $38.00)) ÷ 5,000]
1 – 0.106
=($40.00 + $17.60)/.894 = $64.43
2. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
Number of Budgeted Procedures
10,000
Budgeted Cost
$400,000
Desired Profit
$ 80,000
Explanation / Answer
2. Price = ($440,000 / 12,000) + [($80,000 + 4,800 x ($40.00 – $38.00)) / 6,000] / (1 – 0.106)
= (36.67 + 14.93)/0.894 = $57.72
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