7. How can the budgetary weighted average contribution margin (WACM) percentage be used to help control the actual operations of Reliance?
• Weighted average contribution margin is used to calculate the contribution of services to revenue.
8. If a budgetary weighted average contribution margin (WACM) percentage has been developed with an expected level of revenue and a planned fixed cost and the budgetary WACM percentage is in fact achieved in the next (future) time period, could the organization still face losses if the total revenue drops below the budgeted level or total fixed costs increase beyond the budgeted levels? Can you explain how losses still might occur even though the planned WACM percentage is being realized in the future time period?
•
9. …show more content…
What is the financial impact if Reliance’s reimbursement rate for group counseling service decreases by 10% during the first quarter?
• Revised revenue per unit = $30.18 – (30 x 10%) = $27.18
Variable cost per unit = $5.07
Revised contribution margin per unit = $22.11
• A decrease
C. What would be the financial impact, if any, if the total quarterly revenue remains the same but the quarterly Medicaid Revenue for Case Management decreases by $48,000 (600 units of service at $80 per unit) while quarterly Medicaid Revenue for Group Counseling increases by $48,000 (1,600 units of service at $30 per unit)? Note the change in volume changes total revenues, total variable costs, and contribution margin. Assume the unit price of Private Pay services in Group Counseling is the same as for Medicaid Services ($30 per unit of service).
• Contribution margin ratio for group counseling = 175,750 ÷ 211,250 = 83.2%
Contribution margin ratio for case management = 117,500 ÷ 120,000 = 97.9%
Given the total revenue remains the same and the service mix is shifted from case management to group counseling, the profitability of the center as a whole will go down $6,816.
Contribution margin for decrease in case management
• Weighted average contribution margin is used to calculate the contribution of services to revenue.
8. If a budgetary weighted average contribution margin (WACM) percentage has been developed with an expected level of revenue and a planned fixed cost and the budgetary WACM percentage is in fact achieved in the next (future) time period, could the organization still face losses if the total revenue drops below the budgeted level or total fixed costs increase beyond the budgeted levels? Can you explain how losses still might occur even though the planned WACM percentage is being realized in the future time period?
•
9. …show more content…
What is the financial impact if Reliance’s reimbursement rate for group counseling service decreases by 10% during the first quarter?
• Revised revenue per unit = $30.18 – (30 x 10%) = $27.18
Variable cost per unit = $5.07
Revised contribution margin per unit = $22.11
• A decrease
C. What would be the financial impact, if any, if the total quarterly revenue remains the same but the quarterly Medicaid Revenue for Case Management decreases by $48,000 (600 units of service at $80 per unit) while quarterly Medicaid Revenue for Group Counseling increases by $48,000 (1,600 units of service at $30 per unit)? Note the change in volume changes total revenues, total variable costs, and contribution margin. Assume the unit price of Private Pay services in Group Counseling is the same as for Medicaid Services ($30 per unit of service).
• Contribution margin ratio for group counseling = 175,750 ÷ 211,250 = 83.2%
Contribution margin ratio for case management = 117,500 ÷ 120,000 = 97.9%
Given the total revenue remains the same and the service mix is shifted from case management to group counseling, the profitability of the center as a whole will go down $6,816.
Contribution margin for decrease in case management