Case Study:
Please answer each of the case study:
4.1 Winterstien
As a nurse in the acute care hospital setting, I can see how contribution margins can help manage units within a large organization, especially if the units have separate budgets. Fiscal performance in healthcare organizations is evident by profit, liquidity and debt structure (Broyles, Khaliq & Mattachione, 2009). In recent years, the dependence of healthcare organizations on the prospective payment method that Obamacare enforces makes it even more important to reduce financial liabilities and risks and promote healthy budgets (Broyles et al., 2009). It is important for managers to understand how to analyze and understand contribution margins as they help with planning and control of operations (Baker & Baker, 2014).
According to Broyles et al. (2009) contribution margin is the difference between revenue and total variable costs. The formula is recognized as contribution margin= revenue - variable costs (Baker & Baker, 2014). The contribution margin allows a manager to visualize the break even point in which there is an excess of revenue over costs and a profit is realized (Baker & Baker, 2014). In contrast, if the expenses are more excessive than revenues, then a loss will be realized (Baker & Baker, 2014). The advantage of determining the contribution margin is that it allows management to allocate the excess funds to areas that need more funding after fixed costs are covered or using that revenue other areas that benefit the unit (AllBusiness, nd).
4.1 Franks
A contribution margin refers to a per unit measure of a product's gross operating margin calculated as the product's price minus its total variable costs (Iles, 2005). In my current role as a clinical liaison, Contribution Margins would not help me manage my present work, however, my LTACH facility is a for-profit facility and I'm sure Contribution Margins come into play when speaking of our corporate level. Understanding the concept of a contribution margin is important because it is what allows a health care organization to cover their fixed costs and generate a profit (Iles, 2005). If the contribution margin does not exceed a company's fixed expenses, it does not make a profit. A company that has a contribution margin that is less than its fixed expenses incurs a loss. Health care facility managers/owners who assume that a higher gross margin is better for their business may find themselves in financial difficulty because they aren't considering the additional costs to complete "the sale" (Iles, 2005). It is important for health care organizations to compare various sales channels and choose the best option for their facility.
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4.1 Kelly
According to Baker and Baker (2006), contribution margins are computed as net revenues less variable costs. Contribution margins help me in my present work by determining if new vendors and workflows that we are implementing are successful. My department makes estimates to present to executives when gaining approval for a new vendor or project, but it is also important to follow up and make sure that the new vendor or project was successful.
4.1 McElvain
Do you believe that Contribution Margins can help you manage in your present work?
Per Baker & Baker, "The manager should know how to analyze the relationship of cost, volume, and profit. This important information assists the manager in properly understanding and controlling operations. The first step in such analysis is the computation of the contribution margin." I do think that contribution margins could help me in my present work as the Business Office Manager to help me better understand the accounts payable portion of my job and to better understand budget purposes as a future administrator. By using the contribution margin calculation and computing either fixed or variable cost classifications it would help my organization build a cleaner and more organized budget with a more cost-conscience agenda in mind.
4.2 Franks
I have never had to compute depreciation expenses in my current or past roles. It is important for a health care administrator to know about depreciation expenses because depreciation and cash outlays for capital need not match over time and it is critical to consider both depreciation-based measures and cash or cash-flow based measures in examining the institution's financial health (Needleman, 2016). A hospital with large level-payment loans will have more cash coming in and larger margins on a cash flow basis than it appears on its revenue and expense statement. At the same time, it will have long-term liabilities to repay principle that will be larger than later depreciation charges, and a depreciation-based projection may underestimate the hospital's cash needs. If the health care institution treats the cash coming in early in the cycle as discretionary income, it may be short of funds to fully pay the loan in later years (Needleman, 2016).
My LTACH is a for-profit organization and for-profit entities commonly subtract from the income they report to shareholders certain income tax expenses that did not occasion an outflow of funds during the fiscal year covered by the report. The cash revenues for both for-profit and non-profit institutions also include funds that represent recovery of earlier cash outlays that have been carried as assets on the provider's balance sheet (Gray, 1986). These recoveries, the most common of which are depreciation and amortization, are shown on the income statement as expenses and are deducted from revenues to arrive at what for-profit organizations call net profits (Gray, 1986).
4.2 Randolph
I have never personally had to compute depreciation expense but as a healthcare administrator this is very important. As a healthcare administrator it is important to understand what fixed assets are so that one can determine what type of items should be depreciated. As a healthcare administrator it is important to understand the value of items as well as their salvage price and upkeep cost. In certain situations it might be cheaper to replace an item than to maintance it or even upkeep it. It is important to understand the equipment and tools necessary for whatever type of healthcare organization you are running. The expected life of equipment and quality of brands is another component one might consider before buying new stuff. There are a lot of things that healthcare mangers must be aware of and depreciation expenses is definitely a very important component to what an administrator does.
4.2 McElvain
Depreciation expense spreads, or allocates, the cost of a fixed asset over the useful life of that asset (Baker & Baker, 2014)." No, I personally have not had to compute depreciation expense in my current line of work. As a healthcare administrator, I would need to have knowledge of both depreciation expenses as well as capital expenditures. Depreciation expenses is recognized by spreading out the cost of owning buildings or equipment over a span of years and issuing those costs throughout multiple financial statements by recognizing specific portions of the cost shown as depreciation expense. A building, for example would also classify as a capital expenditure since it is a long-term asset and would need to be recognized as such on the organization's balance sheet. Other areas to be familiar with when using depreciation expense are the useful life of the asset, salvage value, and the reserve for depreciation. Useful life of the asset determines the period of time in which the asset's cost will be spread. Salvage value is also known as scrap value, meaning any expected cash value to be present at the end of the items' useful life.
4.2_Buda
Depreciation expense allocates the cost of a fixed asset, such as a large piece of equipment or a building, over the useful life of the item (Baker & Baker, 2014). I have not had to compute depreciation expense. One of the benefits of working for a very large organization is that we have a finance department, and the financial analysts who work in that department do things like compute depreciation so managers do not have to. Depreciation expense is expressed in department's monthly financial reports, and while managers do not have to complete the calculations, they do have to understand the concept and how it impacts the department's finances.
Healthcare administrators need to first understand what fixed assets are so they know what types of items should be depreciated. They also need to understand the useful value and salvage values of items so they now how long items will be depreciated and what amount will be depreciated. Even if the managers do not calculate the depreciation themselves, they need to understand what method their organization uses to calculate depreciation so they will understand the impact on the financials for the areas they manage.