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Boston Transplant Center

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Submitted By HarshiV
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Financial Management – Case Study BOSTON TRANSPLANT CENTER

1. Considering that 60 per cent of the designated costs are fixed and the rest are variable costs, the marginal cost estimate of the Phase 4 hospital services will be 60 per cent of the total average costs.
Marginal Cost Analysis
Category Average Cost ($)
Nursing 13,314
Ancillary 53,245 OR 5,906
Laboratory 8,097 Radiology 1,389 Drug 15, 268 Other 22, 586 Total 119,805 Therefore, the marginal cost is = 0.6 x 119, 805. Marginal Cost estimate is = $ 71,883.

2. Based on the current scenario, the underlying cost structure equation is as follows:
TC = FC + VC * Volume
Y= a + b X
Y= total costs a = fixed costs , assuming fixed cost increase of 15% the new FC is 580044 b = variable costs
X = Total production units
Y= $870,066 + 71,468X
The structure changes if the contract is expected to bring more than 30 additional transplant patients. The fixed costs range increases from 15% to 25%. The total fixed costs will increase due to the 30 additional transplant patients.
Y= $1, 087, 582.5 + 71,468X
3. The set price at $90,000 is significantly lower than the average reimbursement amount paid by the current payers at $140,000. A reduction in the prices of phase 4 hospitals services leads to reduce fixed cost proportion. The fixed cost proportion would decrease by 15% to 25% and thus, the proportion of fixed costs would be between 35% to

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