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4.1Assume that a radiology group practice has the following cost structure: Fixed costs = $500,000             Variable cost...

4.1Assume that a radiology group practice has the following cost structure: Fixed costs = $500,000             Variable cost per procedure = $25 Furthermore, assume that the group expects to perform 7,500 procedures in the coming year. a.What is the group’s underlying cost structure? b.What are the group’s expected total costs? c.What are the group’s estimated total costs at 5,000 procedures? At 10,000 procedures? d.What is the average cost per procedure at 5,000, 7,500, and 10,000 procedures?
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Answer #1

a. Group underlying cost structure:

N = No. of Procedures

F = Fixed Cost = 500,000 (USD)

R = Variable Cost Rate = 25 (USD/ nos)

Estimated Cost, E = F + N*R

b. Group's expected total cost, E = 500,000 + 7,500*25 = 687,500 (USD)

c. at 5000 procedures, E = 500,000 + 5,000*25 = 625,000 (USD)

at 10000 procedures, E = 500,000 + 10,000*25 = 750,000 (USD)

d. Average cost per procedure at 5,000, 7,500, and 10,000 procedures = average of above three results (from b. and c.) = (687,500+625,000+750,000)/3 = 687,500 (USD)

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