Expense Forecasting Scenario
Your department has performed 20000 procedures during the first six months (JanuaryJune) of 20X1. Spending during that period of time was $210000 for fixed expense items and $1200000 for variable expense items. Of those amounts $50000 of fixed expense money was spent on preparing for a Joint Commission survey. Volume is anticipated to be 10% higher in the second half of the year. On November 1st two new procedure technicians will begin work. The salary and fringe benefit costs for each are $96000/year. Based on the information provided prepare an expense forecast for 20X1.
Financial Analysis Cycle
MARGINAL PROFIT AND LOSS STATEMENT SCENARIO
You are examining a proposal for a new business opportunity a new procedure for which demand is expected to be 1400 units the first year growing by 600 units a year thereafter. The price charged per procedure is $1000. The collection rate is anticipated to be 80%. Each procedure consumes $300 of supplies. Salary cost is estimated to cost $540000 each year fringe benefits are 25% of salaries rent for the facility is $55000/yr and operating cost are $120000/yr.
Questions:
BREAK-EVEN ANALYSIS SCENARIO
You can charge $1075 for a new service. Demand is anticipated to be 8000 units a year. Your business is able to handle up to 16500 units annually so capacity should not be a problem. The average collection rate is 80%. The new service has annual fixed costs of $4700000. Variable cost per unit of service is $420.
Question: Use break-even analysis to determine if this new service is financially viable. If the business is not financially viable what steps could you take to make a case to proceed with implementation? Explain your decision.
BENEFIT/COST RATIO ANALYSIS SCENARIO
You are considering the acquisition of a new piece of equipment with a useful life of five years. This new technology will make your clinical operation more efficient and allow for a reduction of 10 FTEs. The equipment purchase price is $4500000 plus 10% installation fee. The purchase price includes service for the first year an item that has an annual cost of $10000. There is a potential for additional volume of 150000 units in the first year growing by 30000 each year thereafter. The price charged per unit is $15.00 with a 50% collection rate. The staff being eliminated are paid $12.50 per hour. The fringe benefits rate is 20%. The hurdle rate is 7.5%.
Questions: After reviewing Dr. Ward’s Video and the calculations below please answer the following questions: