OPERATING AND NON-OPERATING COSTS AND REVENUES FOR TRAUMA CENTER This document r
ID: 2407329 • Letter: O
Question
OPERATING AND NON-OPERATING COSTS AND REVENUES FOR TRAUMA CENTER
This document rearranges our variable and fixed cost information into the Operating and Non-Operating Costs that would appear on an Income Statement, so that a contribution margin and profit margin can be calculated. [Notice that Revenues are now shown in a right-hand column and costs are shown in a left-hand column.]
Operating Costs relate directly to patient care. Our previous labor costs, equipment costs, and a portion of the building cost are directly related to patient care and reported as Operating Costs. The remainder of the building and administrative costs are reported as Non-Operating costs. Health care facility Income Statements may report Non-Operating Revenue separately as well, since an accurate calculation of contribution margin requires that patient fees alone be set against the operating costs incurred to treat patients.
Operating Revenues:
Surgeries (patient fees) $8,456,210
Operating Cost:
Labor Cost: $3,774,852
Other Variable Cost: $ 487,078
Depreciation:
Building: $9,97,292
OR Equipment: $ 474,901
Ambulance (Basic and Advanced) $ 110,810
Interest:
Building: $ 153,429
OR Equipment: $ 73,062
Ambulance (Basic and Advanced) $ 17,048
$6,088,471 _______________
NET OPERATING REVENUE $2,367,739
Non-Operating Revenue
Grants and Donations $2114053
Non-Operating Cost:
Other Fixed Cost: $1,923,788
Depreciation: Building $ 887,902
Interest: Building $ 147,984
$2,959,674 _______________
NET EARNINGS BEFORE TAX $1,522,118
Tax $ 243,539
NET EARNINGS AFTER TAX $1,278,579
Question 1: Finding the Contribution Margin for the Trauma Center
Step One: The contribution margin is the proportion of Operating Revenues that remain after Operating Costs are paid. Divide the Net Operating Revenue by the Operating Revenue and express the quotient as a decimal (to the second decimal place or as a percentage.
What is the Contribution Margin?
Question 2: Finding the Profit Margin for the Trauma Center
Step One: The profit margin is the proportion of Total Revenues (Operating plus Non-Operating Revenues) that remain after all costs have been paid, including taxes. Divide the Net Earnings After Tax by the Total Revenue (sum of operating and non-operating revenues) and express the quotient as a decimal (to the third decimal place) or as a percentage (to the first decimal place).
What is the Profit Margin?
Question 3: Setting fees per overnight stay by their target contribution margin
(Do not use the Cost & Benefit numbers to answer this problem. Only use the numbers given in the question below.)
Let us suppose that a hospital wants to set their fees for an overnight stay such that the contribution margin on a hospital room will be 32%. The cost to the hospital of an overnight stay (staff, physical equipment, and supplies) is $410. What fee should they charge to obtain a contribution margin of 32%? [Hint: if the contribution margin is 32%, then the $410 cost is 68% of Operating Revenues.]
What is the target fee for an overnight stay? In other words, what must the Operating Revenues from that one room be?
Explanation / Answer
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Question 1 What is the Contribution Margin? Net Operating Revenue 2367739 Operating Revenue 8456210 Contribution Margin 2367739/8456210 28% Question 2 What is the Profit Margin? Net Earning 1278579 Total revenue (8456210+2114053) 10570263 Profit Margin (1278579/10570263) 12.096% Question 3 410/68% 603 Operating Revenue 603 Less: Operating Cost 410 Net Operating Revenue 193Related Questions
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