MRI Center Assignment

Running Head : MRI Center Assignment

MRI Center : Pricing of Services through the use of Cost Volume Profit Analysis

[name]

[Name of School]

In partial fulfillment of the requirements for [subject]

[Instructor 's Name]

August 4 , 2007

ABSTRACT

This is about the application of the Cost Volume Profit Analysis to MRI Center Services . Computations would be shown in detail using the Equation Method . Specific Assumptions on the profit allocation and Fixed Cost would also be discussed . Step by Step computation in determining the pricing details for the services

of MRI Center would be shown in the Results and Analysis section of the

MRI Center Assignment

INTRODUCTION

The Sans Roentgen Outpatient MRI Center has a scanner for its first year of operation . However , the hospital wanted to determine the optimal price that the hospital would charge for its scanner . The center has an allotted budget for its first year of operations . The cost that the company had incurred is 2 ,100 ,000 . 3 ,650 . The company has two kinds of services , Medicare and Private insurance . The sales mix is as follows : Medicare mix is around 60 and Private insurance mix has 40 . As per the data given , Medicare payment per procedure costs 650 and the private insurance costs 85 of the charges . The company 's desired profut is 500 ,000

STATEMENT OF THE PROBLEM

What price must the MRI center charge to its scanner in to reach the profit of 500 ,000

RESULTS AND ANALYSIS

In to solve the problem , the Cost Volume Profit analysis would be used . Fixed cost for the whole year is 2 ,100 ,000 as stated in the problem . For the volume sold , as stated the Medicare mix is around 60 of 3 ,650 , this is equal to (3 ,650 units x 0 .6 ) 2 ,190 units . Private Insurance is 40 of 3 ,650 (3 ,650 x 0 .4 ) which is equal to 1 ,460

In the next set of data , charge per procedure of for the Medicare mix and Private Insurance charges are given . From these , the computation of the variable cost of the Medicare can be determined . By multiplying this charges to the units sold , Medicare Variable cost is 1 ,423 ,500 650 x 2190 units ) and Private Insurance Variable cost is 1 ,785 ,000 2 ,100 ,00 x 0 .85 . This gives a 1 ,423 ,500 1 ,785 ,000 . Based on the computed values , the can now be computed using the equation Sales Fixed Cost Variable Cost Profit . By adding the Fixed Cost 2 ,100 ,000 , the Cost of 3 ,208 ,000 and the Target Profit of 500 ,000 , the would be equal to 5 ,808 ,000 2 ,100 ,000 3 ,20 ,000 500 ,000

To determine the price for each type of service , the equation method would again be used and there would be assumptions on the data given . To be able to determine the fixed cost for each type , the sales mix is used . Fixed cost of the medical...