Review The Walk-In Clinic Data Presented In Problem 55 Const

Review The Walk In Clinic Data Presented In Problem 55 Construct

Review the walk-in clinic data presented in Problem 5.5. Construct projected profit and loss statements at volume levels of 8,000, 9,000, 10,000, 11,000, and 12,000 visits. Assume that the base case forecast is 10,000 visits. Determine the clinic's degree of operating leverage (DOL) at this volume level. Confirm the net incomes at the other volume levels using the DOL combined with the percent changes in volume. Then, assume that the base case volume is 9,000 visits. Calculate the DOL at this volume. Additionally, refer to Problem 6.1 where three patient services departments are adult services, pediatric services, and other services. The revenue and house of housekeeping services for each department are provided: Adult Services earn 3,000, Pediatric Services earn 1,500, and Other Services earn 500 in revenue, with housekeeping hours of 100, 50, and 25 respectively. Find the dollar allocation to each department using patient services revenue as the cost driver, then using hours of housekeeping support as the cost driver. Compare the allocations and discuss which driver is better and why.

Paper For Above instruction

Introduction

The analysis of clinic operational data is essential for understanding financial performance and making strategic decisions. In this paper, we will review the walk-in clinic data presented in Problem 5.5, creating projected profit and loss statements at various visit volumes to determine the clinic's operating leverage. Additionally, we will analyze departmental cost allocations based on different cost drivers, comparing their effectiveness and implications for management.

Projected Profit and Loss Statements at Different Volume Levels

The core premise involves assessing how variations in visit volumes influence the clinic's profitability. Starting with a base case of 10,000 visits, projections are made at 8,000, 9,000, 11,000, and 12,000 visits. These projections include total revenue, variable costs, contribution margins, fixed costs, and net income. The analysis hinges on understanding the relationship between volume and profitability, specifically through the lens of operating leverage.

Calculating Degree of Operating Leverage (DOL)

The DOL measures how sensitive net income is to changes in sales volume. It is calculated at the base volume level where Net Income and Contribution Margin are known. The formula is:

DOL = Contribution Margin / Net Income

By calculating DOL at 10,000 visits, we can extrapolate net income at other volumes using percentage changes. For example, if net income increases by a certain percentage with a 10% increase in volume, then DOL provides that scalar measure. Confirming net incomes at other volumes ensures the accuracy of this approach.

Analysis at a Volume of 9,000 Visits

Evaluating the DOL at 9,000 visits involves similar computations. Comparing the DOL at different volumes offers insights into operational risk and profit elasticity, especially under varying patient loads.

Departmental Cost Allocation Analysis

The second part of the problem involves allocating departmental costs using two different drivers: patient services revenue and hours of housekeeping support. Revenue-based allocation assigns costs proportionally to revenue generated by each department (Adult, Pediatric, Other), while hours-based allocation distributes costs based on housekeeping hours used by each department.

The calculations require dividing total costs according to the proportion of each driver attributable to each department, thereby revealing the difference in cost allocation strategies.

Determining the more appropriate driver depends on which better reflects the true consumption of housekeeping resources. Typically, hours of support provide a more direct measure of service usage and may be preferable when resource consumption does not directly correlate with revenue.

Conclusion

Accurate financial modeling and resource allocation are pivotal for effective management of healthcare clinics. Understanding operating leverage aids in assessing risk, while appropriate cost drivers ensure fair and rational distribution of departmental costs. This analysis underscores the importance of selecting suitable drivers and analyzing volume sensitivities to bolster decision-making and operational efficiency.

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