assignment 433

Complete the following assignment:

This week you will be working on a three (3) part essay assignment. As you work through this

assignment, please read each part carefully, work through the calculations, and then answer the

question at the end of each part in an MS Word document or wordpad.

Part #1

Dr. Jones is interested in expanding his practice by adding a piece of radiology equipment. The basic

cost of the equipment would be $79,000 for the first year. The monthly loan cost for this equipment

is $1,564.29 for five years. Additionally Dr. Jones will have to factor in the cost to hire a radiology tech

with a predicted $39,600 annual salary (this includes all taxes and fringe benefits). The office already

has a radiology room so there is no fixed costs associated with this purchase.

You help Dr. Jones determine that the office will do 1100 studies per year with an average

reimbursement of $51.63. The variable cost per study is $3.24.

Using the standard pro forma sheet, is this a good purchase?

Part #2

Dr. Jones’ office has purchased the above equipment. It is now Year #2 and there is a $7,000 annual

maintenance fee that needs to be added to the costs of the equipment. The variable cost is now

$3.37 per study but Dr. Jones’ office is planning on doing 1675 studies because there has been an

addition of two new managed contracts and there has been a reimbursement increase to $53.16

What is the profit or loss this year? Looking at the two years together, was this a good purchase?

Part #3

Using the information in Part #1 and #2, calculate the standard pro forma sheet years #3 through year

#6.

The changes to be considered in your calculations are the following:

Year #3 Variable Costs $3.43

Staff Costs $ 40,500

# of Estimated Studies 1750

Reimbursement $54.26

Year #4 Variable Costs $3.68

Staff Costs $ 40,500

# of Estimated Studies 1800

Reimbursement $54.99

Year #5 Variable Costs $3.83

Staff Costs $ 41,500

# of Estimated Studies 1850

Reimbursement $55.33

Year #6 Variable Costs $3.97

Staff Costs $42,000

# of Estimated Studies 1900

Reimbursement $56.06