Researchers associated with South Miami Hospital (SMH) developed a new experimen

Question

Researchers associated with South Miami Hospital (SMH) developed a new experimental laser treatment for heart patients. Its development team and the physicians who use the laser consider it to be a lifesaving advance. It should be noted that the physicians who are touting the laser hold a significant stake in the company that produces the laser. To offer a substitute for a balloon angioplasty to treat heart blockages, the experimental laser was developed at a cost of $250,000. SMH estimates that it will cost $20,000 to install the laser. The procedure requires a nurse at $50 per hour, a technician at $30 per hour, and a physician who is paid $750 per hour. Patients are billed $3,000 for the procedure compared to $1,500 for the traditional balloon treatment. Determine the break-even quantity for the new procedure. Is it ethical for the patient to pay for R&D costs prior to the introduction of the final product? Is it proper for physicians to recommend this procedure when they have a vested interest in its usage?

Explanation / Answer

Assuming Billing $3000 per patient is for one Hour. And Life of Laser is also not given hence assumed it will be 5 year and Depreciation is SLM Basis.

Depreciation per annum will be $54000 ($270000/5)

It will be Fixed Cost

BEP Quantity = Fixed cost/Contribution per patient

  

It is not ethical to charge R&D cost from patient before introduction of final product because Research may or may not be feasible.

Billing Price $3,000.00 Varriable Cost: Nurse Cost $50.00 technician COST $30.00 physician $750.00 Total Varriable Cost per Hrs. $830.00 Contribution per Patient $2,170.00

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