Assume that the department of radiology\'s has the following underlying cost str

Question

Assume that the department of radiology's has the following underlying cost structure. Fixed Costs $700,000 & Variable cost per procedure $15. Furthermore assume that the department of radiology expects to perform 6,500 procedures in this upcoming year. A. What is the department of radiology's underlying cost structure? B. What is the department of radiology expected total costs C. What are the department of radiology estimated total cost at 5000 procedures? What is the average cost per procedure at 5000 and 6500 procedure?

Explanation / Answer

Assume that the department of radiology's has the following underlying cost structure. Fixed Costs $700,000 & Variable cost per procedure $15. Furthermore assume that the department of radiology expects to perform 6,500 procedures in this upcoming year.

A. What is the department of radiology's underlying cost structure?

Costs = Variable + Fixed

Costs = $15x + $700,000

where x = number of procedures

B. What is the department of radiology expected total costs

Expected Costs = $15(6500 procedures) + $700,000 = $97500 +$700000 = $797,500

C. What are the department of radiology estimated total cost at 5000 procedures?

Estimated Total Cost = $15(5000 procedures) + $700,000 = $775,000

D. What is the average cost per procedure at 5000 and 6500 procedure?

Average cost at 500 Procedures:

CAVG (5000) = $775,000 / 5000 =$155 per procedure

CAVG (6500) = $797,500 / 6500 =$122.69 per procedure

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