Assume a medical practice only does two types of executive physical examinations long and short examinations, which (ignoring lab tests) consist of three separate activities: Patient check in Physical examination A written report on both types of examinations. A receptionist does the patient check-in and she is paid $40,000 per year. Two doctors are employed to do the physical examinations and they are paid $150,000 each per year. A nurse is paid $75,000 per year to write up the reports. Other practice overheads such as rent, cleaning, insurance and office costs are $100,000 per There are 500 long exams and 1,500 short exams conducted during the year. Long exams take 2 hours and one hour for the report. Short examinations take one hour and 30 minutes for the report. The receptionist spends one hour processing the paperwork for people having long examinations and 30 minutes processing paperwork for people having short examinations. Initially it was thought that it would be simpler to charge the same price for both long and short examinations. On this basis, what fee would this practice have to charge for examinations if it was to cover all its costs and make a zero profit? (2 marks) 2. Patients who received short examinations then complained that they were being charged too much. So it was decided to charge for examinations on the basis of what it cost to provide them, in terms of staff time involved. It was also decided to allocate overheads equally to all examinations irrespective of whether they were short or long. What would the practice then have to charge for short and long examinations, if they were to reflect the actual cost of providing them, and if they were to cover all the costs of the practice? Verify that your fees for the long and short examinations cover all the costs. (3 marks) 3. There are 500 long consultations which each take 4 hours of staff time (2,000 hours in total) and there are 1,500 short consultations which each take 2 hours of staff time (3,000 hours in total). So, it was decided that it would be fairer to allocated 60% of overheads to short consultations and 40% to the long consultations, what fees would you now charge for each examination in order to cover all costs and make a zero profit? Venty that your answer is correct. (3 marks) 4. Suppose the practice aims to make a $50,000 profit What fees should the practice charge for long and short examinations? How would you allocate the practice costs to long and short consultations? Explain your The doctors still think that charging the same fee for long and short consultations would be easier. What advice would you give them about this? (4 marks)
4. the profit of $50000 should be allocated on no of exams conducted. The costs shouls allocated similar to allocation in 3. This makes the fee fair to short consultations and the patients having short consultations will not complain about overcharging. Long consultations take up more time per exam hence should be allocated more of of staff costs. However overall, short term consultations take up more hours. hence overheads are allocated in proportion to total hours for each type of exam.
If you charge same fee to the patient, patients with shorter exams will be overcharged and will start complaining. though it is easier to charge equally, it will create unnecessary issues with patients. Also the practice might not be able to cover the cost of long exams and end up making losses. So its better to charge as per activities and no of exams instead of charging equally.
| 1 | Receptionist Salary | 40000 |
| Doctors\' salary (150000*2) | 300000 |
| Nurse\'s salary | 75000 |
| Other Overheads | 100000 |
| Total Cost | 515000 |
| | |
| No of Long Exams | 500 |
| No of Short Exams | 1500 |
| Total no of exams | 2000 |
| | |
| Fee to be charged to cover all costs and make zero profits = | Total cost/ Total no of exams |
| = | 515000/2000 |
| = | 257.50 |
| | |
| The practice has to charge $257.50 to recover all costs and make zero profit |
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