Homework SourseParkland Hospital provides comprehensive physical exams The
Parkland Hospital provides comprehensive physical exams. The charge per exam is $100 while the variable cost per exam is $65. Forty percent of patients who come in for exams are private pay. The must pay the full charge. An insurance company has an agreement with the hospital that reduces the charge by 20 percent for six percent of the patients. The hospital has $230,000 in fixed cost per year.
Parkland Hospital provides comprehensive physical exams. The charge per exam is $100 while the variable cost per exam is $65. Forty percent of patients who come in for exams are private pay. The must pay the full charge. An insurance company has an agreement with the hospital that reduces the charge by 20 percent for six percent of the patients. The hospital has $230,000 in fixed cost per year.
Solution
As we have 2 types of customers, we need to calculate weighted average contribution margin
Private Pay:
Contribution Margin = Revenue - Variable Costs = $100 - $65 = $35
Insurance Customers:
Contribution Margin = $80(20% less) - $65 = $15
Weighted Average Contribution Margin = ($35 x 0.40) + ($15 x 0.60) = $14 + $9 = $23
Breakeven Units = Fixed Costs/Contribution Margin
= $230,000/$23 = 10,000
