University Hospital has 750 beds. One of its key performance measures is “cost per occupied bed per day.” This number is computed by dividing total operating cost for a month by the total number of beds that were occupied each day during that month.
University Hospital’s average occupancy rate is 80% per month. At this level of occupancy, the hospital’s operating costs are $40 per occupied bed per day, assuming a 30-day month. This figure contains both variable and fixed cost elements.
During April, the hospital’s occupancy rate was only 60%. A total of $625,000 in operating cost was incurred during that month.
1. Compute the variable cost per occupied bed on a daily basis.
2. University Hospital expects its occupancy rate to be 75% in June. What amount of total operating cost should the hospital expect to incur?