municipal hospital relies heavily on cost data to keep its pricing structures in lin 542792

Unit Costs in a Service Business

Municipal Hospital relies heavily on cost data to keep its pricing structures in line with those of its competitors. The hospital provides a wide range of services, including intensive care, intermediate care, and a neonatal nursery. Joo Young, the hospital’s controller, is concerned about the profits generated by the 30-bed intensive care unit (ICU), so she is reviewing current billing procedures for that unit. The focus of her analysis is the hospital’s billing per ICU patient day. This billing equals the per diem cost of intensive care plus a 40 percent markup to cover other operating costs and generate a profit. ICU patient costs include the following:

One other significant ICU cost is equipment, which is about $185,000 per room. Young has determined that the cost per patient day for the equipment is $179. Wiley Dix, the hospital director, has asked Young to compare the current billing procedure with another that uses industry averages to determine the billing per patient day.

Required

1. Compute the cost per patient per day.

2. Compute the billing per patient day using the hospital’s existing markup rate. (Round answers to whole dollars.)

3. Industry averages for markup rates are as follows:

Using these rates, compute the billing per patient day. (Round answers to the nearest whole dollars.)

4. Based on your findings in requirements 2 and 3, which billing procedure would you recommend? Why?