[SOLVED] The Elder Clinic, a not-for-profit

The Elder Clinic, a not-for-profit entity, provides limited medical services to low-income elderly patients. The managerâ€™s summary report for the past four months of operations is reproduced here.

The clinic receives an operating subsidy from the state government, but unfortunately, the operating loss incurred through June ($79Â 392) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the state government last year. To compound the problem, the cold winter months traditionally bring with them an increase in cold weather related health problems. Thus, the clinic is likely to experience an increase in patient visits during July. The accountant made the following assumptions in developing the cost function: Salaries are fixed, and June values are used. Medical supplies vary with patient visits. Rent and utilities are fixed, and last periodâ€™s costs are used. Other expenses are mixed and using regression, fixed cost is $702 and variable cost is $2.53 per patient visit. Clinic management is considering an increase in patient fees to reduce losses. Required (a) Develop a cost function for this data (refer to chapter 2). Use the cost function you developed to solve for the average patient fee necessary to break even, assuming there are 940 patient visits. Compare this new fee with the average patient fee charged during March through June. (b) Suppose the clinic raises its patient fees to break even. What problems do you see from the elderly patientsâ€™ perspective if the fee is raised? (c) In this setting, would an increase in fees be likely to affect patient volume? What problems do you see from the clinicâ€™s perspective if the fee is raised? (d) Other than raising the fee, what ideas might the clinic consider to balance the budget?

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Patient visits Patient fees Medical staff salaries Medical supplies used Administrative salaries Rent Utilities Other expenses Total expenses Operating surplus (loss) March 849 Ś 4230 13 254 3 182 3 197 1 000 532 2 854 24 019 $(19 789) April 821 $ 4180 13 256 3077 3 198 1 000 378 2 776 23 685 $(19 505) May 778 $ 3875 13 254 2934 3 197 1 000 321 2 671 23 377 $(19 502) June 842 $ 4260 14 115 3175 3 412 1 100 226 2 828 24 856 $(20 596) Total 3 290 $ 16 545 53 879 12 368 13 004 4 100 1 457 11 129 95 937 $(79 392)

Question: The Elder Clinic, a not-for-profit

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