Helping Hospital operates a general hospital but rents space to separately owned entity to Pediatrics.

Helping Hospital charges Pediatrics for patients services.

Helping Hospital charged the following costs to Pediatrics for the year ended June 30, 2023.

Patient Services

Bed Capacity

(Variable cost)

(Fixed Cost)

Dietary

$600,000

Janitorial

$50,000

Laundry

150,000

Laboratory

230,000

Pharmacy

300,000

Repairs and maintenance

20,000

General and administrative

1,080,000

Rent

1,200,000

Billings and collections

220,000

Total

$1,500,000

$2,350,000

In addition to these charges from Helping Hospital, Pediatrics incurred the following personnel costs.

Annual Salariesthese salaries are fixed

Supervising nurses

$150,000

Nurses

400,000

Assistants

100,000

Total

$650,000

During the year ended June 30, 2023, Pediatrics charged the following per day to patients and generated the following annual revenue:

$2,000

daily revenue charge to patient for services

$6,000,000

Total Revenues

Required: Prepare your solution on the Part 1 Solution Worksheet. You must provide cell references to this worksheet.

1. Prepare a contribution income statement for Pediatrics for the year ended June 30, 2023.

2. Calculate the number of patient-days that Pediatrics generated in revenue for the year ended June 30, 2023.

3. Compute the contribution margin per patient days generated for the year ended June 30, 2023.

4. Calculate the minimum number of patient-days required for Pediatrics to break even for June 30, 2023.

5. Calculate the operating leverage ratio.

6. If demand for patient days are projected to increase from the 2023 current patient demand in 2024:

10%

Calculate the percentage increase in income using the operating leverage ratio.

7. Prepare a contribution income statement showing the projected 2023 revenue and costs if the demand for patient days increases in 2023 to the projected increase stated in #6.

8. Using the profit for end of year June 30, 2023 and June 30, 2024, calculate that the change in income between the two years in percentage terms. Your answer should equal the percentage change in #6.

9. Recommend to Pediatrics what they should do as the operations grow and have the ability to exceed the current capacity limits that Helping Hospital has put on Pediatrics.

Include in your response the average of how many beds Pediatrics is currently using, and how many average beds will this increase based on #6 projected increase in 2024.

During the year ended June 30, 2023, Pediatrics had the following upper limit to the relevant range of daily beds:

9

Explain why the relevant range is important to know and understand and how it impacts your recommendation. Discuss variable and fixed costs in your response. Assume a 365 day year.