The non-profit University Hospital is contemplating purchasing a new blood gas machine at a cost of $1,500,000.Useful life of this machine is 10 years.The hospital currently serves 5,000 patients per year,40 percent of whom need blood gas analysis data as part of the diagnostic tests.The blood samples are presently sent to a private laboratory that charges $150 per sample.In-house variable expenses are estimated to be $85 per sample if the hospital purchases the analysis machine.
Required: Round your answers to the nearest whole number.
(1)Determine the indifference point between purchasing the machine and using the private laboratory.
(2)Determine how many additional patients would be needed so that the hospital would be indifferent between purchasing the analysis machine and the $150 lab charge.
(3)Determine the amount of the private laboratory charge so that the hospital would be indifferent as to purchasing the machine or using the private laboratory,assuming the current service level of 5,000 patients per year.

Question

Quizplus · Accepted Answer

Feedback: (1)Pro-rated fixed costs (per year)of the blood gas machine = $1,500,000/10 = $150,000 Savings per sample in direct costs if a gas analysis machine is purchased = $150 - $85 = $65 Indifference point = $150,000/$65 = 2,308 samples (tests)per year
(2)Current number of patients needing analysis = 5,000 patients = 5,000 x 40% needing blood gas analysis = 2,000 The difference 2,308 - 2,000 = 308.308 is the additional number of blood gas samples needed to breakeven at the $150 charge.To generate 308 additional charges,the hospital needs308/.4 = 770 additional patients.
(3)The amount the lab charge would have to be to make the University Hospital indifferent between the lab charge and the new machine is $160;the lab charge would have to increase by $10: (P x 2,000)= ($85 x 2,000)+ $150,000 = $320,000 P = $160

The Non-Profit University Hospital Is Contemplating Purchasing a New Blood