# (TCO 3) The breakeven point occurs where:

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 (TCO 3) The breakeven point occurs where:
 (TCO 3) Increasing marginal volume for cost payers makes economic sense if:
 (TCO 3) You increased rates by 10 percent across all services and profits decreased by 5 percent. Cost per unit remained constant. What could account for this change?
 (TCO 3) Which of the following is the first step in any budgetary process?
 (TCO 3) David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer the question.

(TCO 3) Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures). They have offered a flat price of \$10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:

 Average Charge \$15,000 Average LOS 5 Days Routine Charge \$3,600 Cost/Charge 0.80 Variable Cost % 60 Operating Room 2,657 0.80 80 Anesthesiology 293 0.80 80 Lab 1,035 0.70 30 Radiology 345 0.75 50 Medical Supplies 4,524 0.50 90 Pharmacy 1,230 0.50 90 Other Ancillary 1,316 0.80 60 Total Ancillary \$11,400 0.75 50

In the above data set, assume that the hospital's cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would the average cost of MS-DRG 470 be?

 (TCO 3) Describe and explain the difference between fixed costs and variable costs?