healthcare finance

4.2a. What is meant by a business’s underlying cost structure?

1. Why is this information valuable to managers?

4.3What cost structure creates economies of scale? Why?

4.4What are the primary differences between direct and indirect (overhead) costs?

4.5What is the goal of cost allocation?

4.6a. What is a cost pool?

1. What is a cost driver?

c.How is the cost allocation rate determined?

4.10  a.What are the three primary methods of cost allocation?

1. What are the differences among them?

4.12Describe the following methods used to estimate the cost of individual services:

1. Cost-to-charge ratio (CCR) method

1. Relative value unit (RVU) method

1. Activity-based costing (ABC) method

4.13How does ABC differ from traditional costing?

4.1Assume that a radiology group practice has the following cost structure:

Fixed costs = $500,000             Variable cost per procedure = $25

Furthermore, assume that the group expects to perform 7,500 procedures in the coming year.

1. What is the group’s underlying cost structure?
2. What are the group’s expected total costs?
3. What are the group’s estimated total costs at 5,000 procedures? At 10,000 procedures?
4. What is the average cost per procedure at 5,000, 7,500, and 10,000 procedures?

4.2You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Number of visits              10,000                   Utilities                                 2,500

Benefits and wages         220,000                 Medical supplies                 50,000

Rent                                    5,000                      Administrative supplies   10,000

Depreciation                     30,000

Assume that all costs are fixed except supplies costs, which are variable.

1. What is the clinic’s underlying cost structure?
2. What are the clinic’s expected total costs?
3. What are the clinic’s estimated total costs at 7,500 visits? At 12,500 visits?
4. What is the average cost per visit at 7,500, 10,000, and 12,500 visits?