Problem Set 8

Problem Set 8 - Price = cost * [1/(1-Profit margin)] Price...

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HPM 340: Foundations of Health Care Financial Management Fall 2009 Problem Set 8 1. Gapenski, Chapter 7, Questions 1(a) 2. 3. Gapenski, Chapter 7, Problem 1 4. Gapenski, Chapter 7, Problem 2 Hints: In this problem, fee schedule means price. What price should be charged for each service? Also, in part b, you are told that the Audiology department is allocated $100,000 of overhead (indirect costs). Note: only $50,000 of the $100,000 is allocated to the three services. You can ignore the remaining $50,000. 5. Gapenski, Chapter 7, Problem 3 6. Gapenski, Chapter 7, Problem 6 Hint: In problem 6, part b, you are asked to determine the markup needed to earn a 20% profit margin. The markup amount will NOT be the same as the profit margin. See below: Profit margin = (price – cost) / price Profit margin*price = price – cost Price – (Profit margin * price) = cost (1-Profit Margin) * price = cost
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Unformatted text preview: Price = cost * [1/(1-Profit margin)] Price = cost * markup Markup = [1/(1-Profit margin)] 7. Integrated Health Associates (IHA) has the following cost structure: Variable cost per visit $20 Fixed costs $120,000 per year Number of visits per year 4,000 For parts (a) and (b), assume IHA is a price setter. a. What is the minimum price per visit IHA should set using marginal cost pricing? b. Assume IHA sets a price of $50 per visit. Does this reflect a marginal cost pricing strategy or a full cost pricing strategy? How do you know? c. Now assume the market price per visit is $45 and IHA is a price taker. What target average cost per visit must IHA achieve to earn a profit of $50,000? Is the target cost higher or lower than their current average cost per visit? Problem set 8 may be completed in EXCEL or by hand. It is due by 2 p.m. on Tuesday, December 1st....
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