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PART 1:

Dr. Jones is interested in expanding his practice by adding a piece of radiology equipment. The basic cost of the equipment would be $79,000 for the first year. The monthly loan cost for this equipment is $1,564.29 for five years. Additionally Dr. Jones will have to factor in the cost to hire a radiology tech with a predicted $39,600 annual salary (this includes all taxes and fringe benefits). The office already has a radiology room so there is no fixed costs associated with this purchase.

You help Dr. Jones determine that the office will do 1100 studies per year with an average reimbursement of $51.63. The variable cost per study is $3.24.

Using the standard pro forma sheet, is this a good purchase?
Why?

PART 2: Reviewing the Budget

Dr. Jones’ office has purchased the above equipment. It is now Year #2 and there is a $7,000 annual maintenance fee that needs to be added to the costs of the equipment. The variable cost is now $3.37 per study but Dr. Jones’ office is planning on doing 1675 studies because there has been an addition of two new managed contracts and there has been a reimbursement increase to $53.16
A. What is the profit or loss this year?
B. Looking at the two years together, was this a good purchase? 25 points

PART 3: Preparing a Budget for 2012

Using the information in Part #1 and #2, calculate the standard pro forma sheet years #3 through year #6.

The changes to be considered in your calculations are the following:
Year #3 Variable Costs $ 3.43
Staff Costs $ 40,500
# of Estimated Studies 1750
Reimbursement $ 54.26

Year #4 Variable Costs $ 3.68
Staff Costs $ 40,500
# of Estimated Studies 1800
Reimbursement $ 54.99

Year #5 Variable Costs $ 3.83
Staff Costs $ 41,500
# of Estimated Studies 1850
Reimbursement $ 55.33

Year #6 Variable Costs $ 3.97
Staff Costs $ 42,000
# of Estimated Studies 1900
Reimbursement $ 56.06

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