Cost analysis As vice president for Ambulatory Clinical Services for a small community hospital, you

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Cost analysis As vice president for Ambulatory Clinical Services for a
small community hospital, you oversee various laboratory operations To
familiarize yourself with costs of operating the ECG (electrocardiography)
laboratory, you do some simple breakdown of costs Aside from equipment costs,
you find that:

1 It takes about 15 minutes for the ECG technician to
administer a test

2 The ECG technician’s pay is $25 per hour, including
fringe benefits, or $52,000 per year

3 Supplies for each test cost $3

4 The lab has the capacity to do 8,300 tests per year at
current capacity, although it is operating at 90% of capacity

5 Costs for space, utilities, and depreciation amount to
$25,000 per year

Given the above:

a Identify the fixed costs and the variable costs

b What are the total fixed costs, total variable costs, and
total cost of the lab given its current capacity? What is the average cost per
test at current capacity?

c What is the average cost of a test if the lab runs at
100% of capacity and at 65% of capacity?

Answer the following three parts assuming the volume of
tests performed increases from 90% to 100% of capacity

d What is the incremental cost of a test?

e How does the incremental cost change if the union
successfully negotiates a 35% annual increase in wages after the lab reaches
100% of capacity?

f Compare the incremental cost figures for (d) and, (e)
above and explain why they differ or do not differ

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