Essay Fianance for healthcare
4. Your paper should include:
a. Explain why allocation methods are used.
Inherently, in all businesses there is overhead costs or non-direct costs. If management wants to know the true cost …show more content…
Look at the Profit and Loss Statements on the spread sheet
e. What does the analysis indicate about profitability of each patient services department with or without allocation?
Over a wide range of assumptions regarding the relative sizes of the cost pools and the allocation rates, we find that Medical Services and Obstetrics are profitable, while Emergency Services is not. Thus, the inherent operations of Emergency Services must be examined to see if Maple Street Hospital management can take any actions to improve this department’s profitability.
However, at least under the revenue and cost framework used in the managerial accounting system, Pediatrics probably is inherently unprofitable. This does not necessarily mean department closure should be considered. The department may be vital to the hospital’s mission, therefore may be willing to subsidize the losses with profits from the other department.
The true economic contribution of Emergency Services to the organization may not be adequately measured. For example, Emergency Services may be instrumental in creating patient demand for Obstetrics and Medical Services. If Emergency Services were closed and patient demand fell significantly, the loss in aggregate profit from falling volume could exceed the losses realized by Emergency Services. If this is the case, Emergency Services is financially