Reference no: EM131367396

Healthcare Finance

Part I

Describe the following 4 types of costs:

• Fixed
• Variable
• Semivariable
• Semifixed

Part II

Dynamic Medical Suppliers, Inc. has sales of $300,000 for the calendar year of 2010. Its total variable costs equal $107,700.

Calculate the contribution margin ratio, and determine whether it presents profit or loss to the organization.

	Total	% of Revenue
Sales (Revenue)	$300,000.00	100%
Less variable costs		36%
Costs of medical supplies sold	$65,825.00
Commission	$26,875.00
Delivery fees	$15,000.00
Total variable costs	$107,700.00
Contribution margin	X	X
Less fixed costs	$115,000.00
Operating income	$77,300.00

Part III

Determine the number of full-time employees needed to cover multiple shifts based on information provided within the following scenario:

Health care is a critical field, and some agencies require that staff members be present at all times to ensure that there is adequate staff to care for the patients. For example, a medical center that has both inpatient and outpatient units will require staff be present after normal business hours to provide care to those admitted to the inpatient unit. It is also important to ensure that there is sufficient staff to provide care to the number of patients being treated. This is imperative to managers when it comes to determining costs associated with salary and benefits. If an organization is overscheduling staff, it could have a severe impact on the revenue because the staff-to-patient ratio would not be appropriate.

You create the schedule for the nursing staff in the pediatric intensive-care unit. Your daily staffing uses 6 registered nurses (RNs) working 8 hours and 2 licensed practical nurses (LPNs) working 3 hours. Determine the number of work hours required for 1 day.

Part IV

Understanding financial ratios can help the health care organization analyze its credit. Financial ratios should be compared to other financial information within the organization. Values used in calculating financial ratios are taken from the balance sheet, income statement, and statement of cash flows.

The following are types of ratios:

• Liquidity ratios tell whether the health care agency is able to meet its financial obligations.

o Are there assets or cash available to pay the bills?

• Solvency ratios tell whether the organization has the means to meet its long-term obligations.

o How solvent is the agency?

• Profitability ratios tell whether the operating revenue outweighs the operating expense.

o How well does the medical center use its assets and control its expenses?

Compute ratios using the provided data/information below.

Use the financial reports below to compute the requested financial ratios. Provide a brief statement (1-2 sentences) explaining the outcome of the ratio.

Dominion Plus Surgery Center Balance Sheet December 31, 200XX
Assets
Current assets
Cash and cash equivalents	$225,000.00
Accounts receivable (net)	$450,000.00
Inventories	$50,000.00
Prepaid insurance	$18,500.00
Total current assets		$743,500.00
Property, plant, and equipment
Land	$85,000.00
Buildings (net)	$2,500.00
Equipment (net)	$215,000.00
Net property, plant, and equipment		$302,500.00
Other assets
Investments	$75,000.00
Total other assets		$75,000.00
Total assets		$1,121,000.00
Liabilities
Current liabilities	$300,000.00
Total current liabilities		$300,000.00
Long-term debt	$145,000.00
Total liabilities		$445,000.00
Fund balances
Unrestricted	$295,000.00
Restricted	$ 0.00
Total fund balance		$295,000.00
Total liabilities and fund balance		$740,000.00

Dominion Plus Surgery Center Statement of Revenue and Expenses Year Ending 12/31/20XX
Revenue
Net patient service revenue	$2,555,874.00
Total operating revenue		$2,555,874.00
Operating expenses
Surgical services	$713,850.00
Post-op services	$300,000.00
Depreciation	$100,000.00
Interest	$63,000.00
Total operating expenses		$1,176,850.00
Income from operations		$115,000.00
Losses (nonoperating)
Interest income	$7,700.00
Gains (nonoperating)		$7,700.00
Revenue and gains in excess of expenses and losses		$122,700.00
Increase in unrestricted fund balance		$122,700.00

Part V

• Using the information provided in Part II, determine the break-even point for the organization.

• Dynamic Medical Suppliers, Inc. has sales of $375,000 for the calendar year of 2010. Its total variable costs equal $63,730.

Part VI

• Using information provided in Parts II and V, identify actions the organization's management team can take to assist the organization in reaching its break-even point.

The organization can work hard to ensure that there is more revenue coming in than there are expenses going out. This was there as a gain versus a loss. It is management's duty to stay abreast of the current sales through monitoring and reporting. If a decline is observed throughout the year, management should discuss changes that must occur to increase sales and not experience any loss with leadership and the staff.