Instructions: After reading Chapter 7 in the Gapenski and Reiter text, answer the questions and solve the problems using the Word document below.
Responses should be in Times New Roman, 12-point font, one-inch margins, single-spaced. The completed assignment should not exceed 5 pages in length.
If you use an Excel spreadsheet to solve the problems, embed your Excel work in the Word document using the embed function, allowing you to still only
submit a single Word document. Your finished homework file should be named using the First initial of your first name_Your last name_Module 6 Homework
(i.e., J_Smith_Module 6 Homework).
Questions: (Found on the Assignment #6 Word document linked below)
7.1 Describe the following methods used to estimate the cost of individual services:
Cost-to-charge ratio (CCR) method
Relative-value-unit (RVU) method
Activity-based-costing (ABC) method
7.4 Explain the essential differences between full-cost pricing and marginal-cost pricing strategies.
7.5 What would happen financially to a health services organization over time if its prices were set at
What is cross-subsidization (price shifting)?
Is it as prevalent today as it has been in the past?
Problems: (found on the Assignment #6 Word document)
7.1 Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are relevant data estimates:
Variable cost per visit $5.00
Annual direct fixed costs $500,000
Annual overhead allocation $ 50,000
Expected annual utilization (visits) 10,000
What per-visit price must be set for the service to break even? To earn an annual profit of $100,000?
Repeat Part a, but assume that the variable cost per visit is $10.
Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000.
Repeat Part a assuming both $10 variable cost and $1,000,000 in direct fixed costs.
7.2 The audiology department at Randall Clinic offers many services to the clinic’s patients. The three most common, along with cost and utilization data, are
What is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs?
Assume that the audiology department is allocated $100,000 in total overhead by the clinic, and the department director has allocated $50,000 of this
amount to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (To answer this question, assume
that the allocation of overhead costs to each service is made on the basis of number of visits.)
Assume that these services must make a combined profit of $25,000. Now what is the fee schedule? (To answer this question, assume that the profit
requirement is allocated in the same way as overhead costs.)
Before submitting your homework assignment, be sure to review the Homework Question/Problem Set Grading Rubric.
When you have completed work on the Assignment #6 Word document by answering all questions and solving all problems, please upload your work below
as a Word document. All assignments should be completed and uploaded prior to the live session.
When your assignment has been graded, the system will notify you that a grade has been ‘returned.’ This means your instructor has graded the assignment,
not that it is being rejected.