From the income statement provided. Answer these questions. 1. Is the organizati

Question

From the income statement provided. Answer these questions.

1. Is the organization making a profit or loss? How do you know. Show work.

2. What is contribution margin? Show work.

3. What is the break even point? Show work.

MedStar Health, Inc. Consolidated Statements of Operations and Changes in Net Assets For the Three and Six Months Ended December 31, 2017 and 2016 (Dollars in millions) Six Months Ended 2017 Actual Budget Actual Three Months Ended December 31 2016 Actual December 31 2017 2016 2017 Actual 2017 Operating revenues: Net patient service revenue Provision for bad debts S1,242.4 S1.200.6 1,169.5 $2,410.7 $2,398.6 $2,321.3 (55.1) (56.3) (54.) (108.8 Total net patient service revenue, net of provision for bad debts 1,1873 1,1443 1,115.4 2,3019 2,286.3 2,209.9 Premium revenue Other operating revenue 142.7 209.9 202.7 52.6 1,394.2 1,406.8 1,368.8 422.0 399.6 94.7 2,778.2 2,810.4 2,704.2 363.1 113.2 102.1 Net operating revenues Operating expenses Personnel 774.3 748.2 737.8 509.3 1,488.7 1,449.2 385.3 378.2 489.0 455.6 242.4 267.3 255.8 24.9 22.4 96.0 es Purchased Other operating Interest expense Depreciation and amortization 203.3 191.8 188.9 207.9 245.2 231.4 118.6 134.6 134.2 392.7 447.5 services 11.5 125 52.5 22.8 104.9 56.2 Total operating expenses 1388.5 1,352.5 2,719.6 2,766.9 2,657.2 Earnings from operations 26.1 18.3 16.3 58.6 43.5 47.0 Non-operating gains (losses): Investment income Net realized gains on sale of investments Unrealized gains on derivative instruments Unrealized gains (losses) on investments Other 5.8 17.06.3 4.8 4.9 10.4 24.6 9.5 7.3 12.5 21.4 40.2 43.3 4.3 33.8 (3.2) 54.3 10.6 (13.2) 85.8 (6.6) 115.6 Total non-operating gains (losses) 66.3 Excess of revenue over expenses S80.4 S39.9 S18.4 $174.2 S86.8 $113.3

Explanation / Answer

1. The organization has been making a profit and this can be seen from its actual income statement figures for the three months and for the six months provided here. For the three months ended 2017 the company made a profit of $80.4 million, for the three months ended 2016 the company made a profit of $18.4 million. The six months profit figures for 2017 was $174.2 million and for 2016 was $113.3 million.

Profit = earnings from operations+total non operating gains. For the three months ended 2017 profit = 26.1+54.3 = $80.4 million

2. Contribution margin = net operating revenues – variable expenses

Variable expenses = personnel+supplies+other operating expense.

3. Break even point is the point at which the earning from operations will be nil. In other words at break even point the revenue = earning from operations

Break even point = fixed costs/contribution margin ratio

Contribution margin ratio = (sales-variable expenses)/sales

(Please note that actual figures are used for computation and not the budgeted figures)

3 months ended 2017 3 months ended 2016 6 months ended 2017 6 months ended 2016 Net operating revenue 1,394.20 1,368.80 2,778.20 2,704.20 less: variable costs Personnel 774.30 737.80 1,509.30 1,449.20 Supplies 203.30 188.90 392.70 378.20 Purchased services 207.90 231.40 447.50 455.60 Other operating expense 118.60 134.20 242.40 255.80 Contribution margin 90.10 76.50 186.30 165.40

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