question 1 feasibility of urgent care center shut down point produce or do not produce shut down step 1 find average variable cost avc step 2 does the fee per patient cover average variable cost compare price and avc which determines the shut
Use this to answer the three questions at the bottom of the page, SHOW ALL WORK
COSTS: Urgent Care Center
All costs and revenues are per year
- Labor Cost
- 5 Primary Care Physicians Salary$150,000 $750,000
- 8 RN/BSN Salary Salary $64,000 $512,000
- Payroll Taxes (all employees) $ 327,400
- Benefits (all employees) $1,893,000
- Other Variable Costs
- Supplies & Misc. Overhead$102,400
- Capital Cost
- Annualized Building Cost$465,403
- Annualized Equipment Cost$ 93,081
- Other Fixed Costs
- Legal$ 232,701
- Administrative$ 418,873
- Administrative Fee to Franchise$120,000
TOTAL VARIABLE COST$3,619,800
TOTAL FIXED COST$ 1,671,343
REVENUES: Urgent Care Center
Each for the five (5) primary care physicians can see 3200 patients in a year, at an average annual fee per patient of $300.
Question 1: Feasible Range for the Urgent Care Center
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 always available to decision makers on a detailed and up-to-date basis.
Step 1: Find Average Variable Cost by dividing the Total Variable Cost by the total number of patients served by all FIVE physicians, given under Revenues.
Step 2: 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 four physicians.
Step 3: Does the fee per patient cover the Average Total Cost?
QUESTIONS THAT NEED ANSWERED ARE BELOW AND SHOW ALL WORK
Question 1: Feasibility of Urgent Care Center (SHUT DOWN POINT: PRODUCE OR DO NOT PRODUCE/SHUT DOWN)
Step 1: Find Average Variable Cost (AVC)
Step 2: Does the fee per patient cover Average Variable Cost? (COMPARE PRICE AND AVC, WHICH DETERMINES THE SHUT DOWN POINT)
Question 2: Breakeven for the Urgent Care Center
Step 1: Find Total Cost (TC)
Step 2: Find Average Total Cost (ATC)
Step 3: Does the fee per patient cover Average Total Cost? (COMPARE PRICE AND ATC, WHICH DETERMINES THE BREAK EVEN POINT, IN WHICH ECONOMIC PROFITS = 0)
Question 3: Economic Profit for the Urgent Care Center
Step 1: Find Total Revenue (TR)
Step 2: Calculate Economic Profit.