Homework answers / question archive / 1)Using Appendix A on page 5, calculate and interpret the following operational and financial ratios from Anytown Medical Center

1)Using Appendix A on page 5, calculate and interpret the following operational and financial ratios from Anytown Medical Center

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1)Using Appendix A on page 5, calculate and interpret the following operational and financial ratios from Anytown Medical Center.  Include in your answer for each ratio:  definition of the ratio (What does it measure?  In which direction is more favorable compared to industry average?), calculation (include formula used to calculate – plugging in numbers that you used to calculate; in other words, show your work), relatively brief (1-2 sentences) analysis of the ratio versus industry average.  [20 Points]

 

 

                Ratio                                                                       Industry Average

 

                Occupancy Percent                                             65.2%

                Average Length-of-Stay                                      5.4 Days

                Average Daily Census                                          Not Available

                Medicare Percent                                               28.6% (of D/Cs)

                Contractual Allowance                                        56.2%

                Current Ratio                                                        2.07

                Days in Accounts Receivable                             55.2 Days

                Days Cash on Hand                                              22.6

                Inventory Turnover                                             25.8

                Total Asset Turnover                                           1.4

                Fixed-Asset Financing                                         28.6%

                Operating Margin                                                5.5%

                Current Asset Turnover                                      1.4

                Average Age of Plant                                          11.5 Years

                Debt Ratio                                                             63.0%

 

               

 

 

[INSERT YOUR ANSWER HERE – IF IT’S EASIER, YOU MAY CUT/PASTE EXCEL SPREADSHEET WITH YOUR WORK, INCLUDING APPROPRIATE CALCULATIONS.  DO NOT CUT/PASTE AS A PICTURE – BUT AS AN EXCEL SPREADSHEET.    REGARDLESS, BE SURE TO SHOW YOUR WORK.]

 

 

2. St. Benedict’s Hospital has three support departments and four patient services departments. The direct costs to each support department are:

 

                                General Administration                      $1,500,000

                                Facilities                                                 $3,000,000

                                Financial Services                                $2,000,000

 

            Data for the above support departments and four patient services departments can be found in Appendix B on page 6.

 

 

1. Assume that the hospital uses the direct method (the most simple and least complicated of the available allocation methods) for cost allocation.  Furthermore, the cost driver for General Administration and Financial Services are patient services revenue, while the cost driver for Facilities is space utilization.  Given those facts, allocate the hospital’s overhead costs to the patient service departments.  [15 Points]

 

 

 

 

 

[INSERT YOUR ANSWER HERE – IF IT’S EASIER, YOU MAY CUT/PASTE EXCEL SPREADSHEET WITH YOUR WORK, INCLUDING APPROPRIATE CALCULATIONS.  DO NOT CUT/PASTE AS A PICTURE – BUT AS AN EXCEL SPREADSHEET.    REGARDLESS, BE SURE TO SHOW YOUR WORK.]

 

 

 

2. Between the above and the other cost allocation methods, which would you prefer to use based upon its fairness in allocating overhead expenses?  Why?  [5 Points]

 

 

[INSERT YOUR ANSWER HERE]

 

 

3. After many years as a successful healthcare executive, your career has transitioned.  Recently, you were named president of the local hospital association.  Your organization serves as an advocate for the hospitals within a five-county market area.  The region includes many large tertiary care centers (larger hospitals), who draw referrals from an even larger geographic area.

 

Your board chair – the president of a smaller community hospital in the region – has asked you to inform the board about emerging issues.  As a starting point, you’ve decided to jot down some important definitions.  In the space below, please define the following (offer a complete definition, but remember that this is not an essay question).   [5 Points for each definition – total of 25 Points]

 

 

1. Price Discrimination

       

        [INSERT YOUR ANSWER HERE]

 

 

2. Price-Setter

 

        [INSERT YOUR ANSWER HERE]

 

 

3. Price-Taker

 

        [INSERT YOUR ANSWER HERE]

 

 

4. Leading Indicator

 

        [INSERT YOUR ANSWER HERE]

 

 

5. Lagging Indicator

 

        [INSERT YOUR ANSWER HERE]

 

 

 

 

4. In-and-Out Imaging Center is adding a new CT machine to serve its growing cardiac service line business.  This mega-slice machine (which refers to how “fast” the individual scans are done) will allow the facility to perform heart scans quicker and more efficiently.

 

Each procedure will take twenty (20) minutes, with ten (10) minutes allocated for clean-up.  As such, two (2) scans can be completed every hour.  The facility will be open for a total of eight (8) hours each day – with staff allocated so that scans can be performed every hour without a break.  Given patient preference, the imaging center will be open a total of 250 days per year.

 

Based upon market analyses, the imaging center is expected to initially operate at 50% capacity.  The estimated daily operating expenses are $6,267.  Given the ultimate plans for growth, the facility will not incur additional expenses if volumes were to increase.  The imaging center will bill $625 per scan.

 

 

1. In the beginning of operation, what is the projected daily profit /(loss)?  [5 Points]

 

 

[INSERT YOUR ANSWER HERE – IF IT’S EASIER, YOU MAY CUT/PASTE AN EXCEL SPREADSHEET WITH YOUR WORK, INCLUDING APPROPRIATE CALCULATIONS.  DO NOT CUT/PASTE AS A PICTURE – BUT AS AN EXCEL SPREADSHEET.  BE SURE TO SHOW YOUR WORK.]

 

 

 

2. From the above, what is the annual profit/(loss)?  [5 Points]

 

 

[INSERT YOUR ANSWER HERE – IF IT’S EASIER, YOU MAY CUT/PASTE AN EXCEL SPREADSHEET WITH YOUR WORK, INCLUDING APPROPRIATE CALCULATIONS.  DO NOT CUT/PASTE AS A PICTURE – BUT AS AN EXCEL SPREADSHEET.  BE SURE TO SHOW YOUR WORK.]

 

 

 

3. Using your best estimate, at what point will the imaging center “break even” on a daily basis?  In other words, how many more scans need to be completed for the center to cover its operating expenses – given the daily projection of revenue?  At this level, what is the daily profit?  What percentage increase does this equate to?  [15 Points]

 

 

[INSERT YOUR ANSWER HERE – IF IT’S EASIER, YOU MAY CUT/PASTE AN EXCEL SPREADSHEET WITH YOUR WORK, INCLUDING APPROPRIATE CALCULATIONS.  DO NOT CUT/PASTE AS A PICTURE – BUT AS AN EXCEL SPREADSHEET.    BE SURE TO SHOW YOUR WORK.]