1.) What is the marginal cost estimate of the Phase 4 hospital services, assuming that 60 percent of the designated costs are fixed and the remaining costs are variable? * The Marginal cost estimate is $ 71,468
2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?
* The current amount of patients treated for liver transplant volume totaled 120 patients annually, with a reimbursement rate of $140,000, providing the hospital with the ability to handle 30 more patients before the fixed costs would increase. 120 +30= 150. This means that the hospital can sufficiently handle a …show more content…
Excess capacity decrease profits, with excess capacity each admission will contribute to the fixed costs, therefore the increase in utilization will decrease the profit loss associated with the using the total margin costs, if the excess capacity can be utilized. 7. Considering the long-term strategy, and the issues in Question 6, what is your recommendation for the Phase 4 hospital services price? Why? * In this case the total margin was changed to 90,000 a decrease of fixed costs would need to be created. Changing the amount of fixed costs into variable based on costs and utilization could result in possibly significantly negative issues to arise. * The best recommendation is to go with the total margin cost at the 60% fixed costs, as any the increase in fixed costs decrease the total margin costs and 60% currently already provides a loss. It is imperative to ensure that the payers will increase utilization at the facility and outlier payment agreements are contracted as well,