There are three important concepts in Week 3: (1) Profit
analysis and Break even analysis; (2) Cost determination of medical services;
(3) Charge setting of medical services. Our weekly discussions cover the above
three parts of concepts. After completing the topic 1, I hope you will be more
comfortable to work on Assessment #2.
1. Profit analysis and Break even analysis Chapter 5 of Gapenski’s
difference between fixed costs and variable costs? Define and give an example
1b.What are the two primary differences
between P&L statement and income statement?
1c.Complete the following P&L
Good Health Clinic: 2015 Projected P&L Statement (based
on 65,000 patient visits)
Total revenue ($100 x 65,000)
(A) Total variable costs ($30 x 65,000)
(B) Total contribution margin
x 65,000) $ (D) Fixed costs
P&L statement can be expressed as the equation:
Total revenues – Total variable costs – Fixed costs = Profit
charge x Volume) – (Unit variable cost x Volume) – Fixed costs = Profit
Using the information from the above P&L statement, what is
the break-even point in volume?(Hint: no profit at break-even.)
point in dollar indicates the revenue level one has to reach to break-even,
which is equal to the revenue gained if the break-even point in volume is
achieved. Based on the previous question, what is the break-even point in
dollar? (Relationship of Costs to Volume and Revenue Chapter 6 of
out Table 5.8from
Gapenski’s book for another P&L Statement. Why does it have additional
lines of revenues compared with the one for Good Health Clinic?
1g.Compare the P&L statement atTable 5.10 with the one for Good Health Clinic. What is
the difference in estimating revenue? Based on Table 5.10, can the clinic
receive more revenues by providing more clinic visits?
2. Cost allocation and determination: Chapter 6 of Nowicki’s book
two departments/units in a healthcare organization that can be considered as
revenue centers. List two departments/units that can only be cost centers but
not revenue centers.
2b.Define two of cost allocation methods
and List at least one advantage and one disadvantage for each.
2c.What is "cost driver"? A
manager in a hospital needs to allocate housekeeping costs to other
departments. Can you suggest a cost driver and provide your reason?
3. Setting Charges: Chapter 7 of Nowicki’s book: Explain the
following methods of setting charges: RVU method, hourly rate method, and
surcharge method. For EACH method, provide one department in a
healthcare organization as an example that would use this method.