Determining charges for private pay residents. Shady Grove Nursing Home has 220 private pay residents. The administrator is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $125 per day whereas private pay residents pay on average 90 percent of full daily charges. The administrator estimates that variable cost per resident per day is $45 for supplies, food, and contracted services, and annual fixed costs are $6,000,000.
• What is the daily contribution margin of each non-private pay resident?
• If 25 percent of the residents are non-private pay, what will Shady Rest charge the private pay patients to break even?
• What if non-private pay payors cover 50 percent of the residents?
• The owner of Shady Rest Home insists that the facility earn $80,000 in annual profits. How much must the administrator raise the per day charge for the private insured residents if 25 percent of the residents are covered by non-private pay payors?