Case 3: Big Bend's Medical Center Essay

1221 Words Apr 9th, 2016 5 Pages
Overview
Big Bend Medical Center is a full-service, not-for-profit, acute care hospital with 325 beds located in Big Bend, Texas. The bulk of the hospital’s facilities are devoted to inpatient care and emergency services. (Gapenski, pg. 27) The outpatient services section of the hospital is used by the Outpatient Clinic, as well as the Dialysis Center. The Outpatient Clinic, which makes up about 80 percent of the outpatient services section, has recently grown in volume and has created a need for 25 percent more space than it currently has. Moving the Dialysis Center to a new building was decide to allow expansion of the Outpatient Clinic. A change and focus on the allocation of costs has some department heads angry and claiming of
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Thus, he used actual facilities costs as the basis for the allocation to the Dialysis Center. (Gapenski, pg. 30) John Van Pelt had concerns with the presented allocation for the Dialysis Center including: being charged for actual facility costs for its new location when it is being forced out, if the $400,000 annual allocation is correct, and the revenue and expense of the pharmacy. Before any of these concerns could be addressed, Rick left to be CFO of a competing investor-owned hospital. The duty of allocating the indirect costs for the expansion of the Outpatient Clinic and the moving of the Dialysis Center was left to me to create and present at the next department heads’ meeting.
Financials
The data below shows allocations of the indirect costs associated with the Outpatient Clinic and the Dialysis Center. The approach of actual facilities costs will begin to be used on the Outpatient Center because they will be expanding and forcing the Dialysis Center out of the building. A different allocation will be considered for the Dialysis Center after it is well established in the new building. . | Final Allocation | | DC | OC | Total revenues | $ 2,700,000 | $ 20,000,000 | Direct expenses: | 2,100,000 | 12,291,444 | Contribution margin* | $ 600,000 | $ 7,708,556 | Percent of revenues | 22.2% | 38.5% | | | | Indirect costs | | | | | | Facilities costs | $ 300,000 | $ 1,600,000 | General

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