Reference no: EM132813002

Question 1: Feasible Range for the Urgent Care Center always

In order to justify our scale of operation we must be able to attract enough patients to be inside the feasible range of production. The feasible range is governed by the way productivity changes as more staff must share the fixed resources. Unfortunately it is rare for detailed information about productivity to be available to decision-makers. However because of the one-to-one correspondence between productivity and cost, we can see the boundaries of the feasible range reflected in our variable costs, and these costs are available to decision makers on a detailed and up-to-date basis.

: Find Average Variable Cost by dividing the Total Variable Cost by the total number of patients served by all three physicians, given under Revenues.

: The fee per patient is also given under Revenues. Does the fee per patient cover the Average Variable Cost?

Question 2: Breaking Even for the Urgent Care Center

In the short run it is enough to establish that your scale of operation is justified, but in the long run we have to cover our capital costs as well as our labor and other variable costs.

Step 1: Find the Total Cost by summing the Total Variable Cost and Total Fixed Cost.

Step 2: Find the Average Total Cost by dividing Total Cost by the total number of patients served by all three physicians.

Step 3: Does the fee per patient cover the Average Total Cost?

COSTS AND REVENUES FOR URGENT CARE CENTER

COSTS: Urgent Care Center

All costs and revenues are per year

• Labor Cost
  • 3 Primary Care Physicians Salary$150,000 $450,000
  • 5 RN/BSN Salary Salary $65,000 $325,000
  • Payroll Taxes (all employees) $200,000
  • Benefits (all employees) $1,162,500

• Other Variable Costs
  • Supplies & Misc. Overhead$102,400
  • Advertising$35,000

       TOTAL VARIABLE COST $2,274,900

• Capital Cost
  • Annualized Building Cost$292,487
  • Annualized Equipment Cost$58,497

• Other Fixed Costs
  • Insurance$214,491
  • Legal$146,244
  • Administrative$263,238
  • Administrative Fee to Franchise$120,000

TOTAL FIXED COST $1,094,957

REVENUES: Urgent Care Center

Each for the three (3) primary care physicians can see 3500 patients in a year, at an average annual fee per patient of $350. 

Question 1:  Feasibility of Urgent Care Center

Step 1: Find Average Variable Cost

Step 2: Does the fee per patient cover Average Variable Cost?

If Yes, the facility is operating in its feasible range. If No, the facility should reduce its scale of operation.

Question 2: Breakeven for the Urgent Care Center

Step 1: Find Total Cost

Step 2: Find Average Total Cost

Step 3: Does the fee per patient cover Average Total Cost?

If Yes, the facility is breaking even. If No, the facility is operating at a loss.