ROLE OF COST IN DECISION MAKING IN HEALTHCARE INDUSTRY.

Please answer all questions thoroughly and no plagarism. Please review all answers.

Course material: Neumann, B. R., Clement, J. P., and Cooper, J. C. Financial Management: Concepts and Applications for Health Care Organizations. Dubuque, IA: Kendall/Hunt Publishing Company, 1999, 239.

1. Where would you most likely find each of the following expenses listed: Administration, Physical Therapy, Nursing, or Maintenance?

a. The Administrator’s salary

b. Pharmacy supplies

c. Crutches

d. Fuel

e. Clerical office help

f. Office supplies

g. Physical therapy salaries

h. The salary for the Director of Nursing

i. RN wages

j. Snowplowing expenses

k. Staff education on how to use crutches with a patient

l. Health insurance for the clerical staff in the physical therapy department.

2. Identify each of the following as either direct costs or indirect costs?

a. Real estate taxes

b. Clinic telephone expense

c. Oil for the heat for the whole facility

d. Emergency room medical supplies

e. Liability insurance

f. Nursing wages for the operating room

g. Food for the residents in the medical surgical unit

h. Diapers for the babies in the nursery

i. Computer system for the facility

j. Marketing expense for the new wing

3. What is the contribution margin in the following example?

a. Revenues: $1,200,000

b. Variable Costs: $ 215,000

c. Fixed Costs: $1,000,000

What is the contribution margin percentage?

4. Explain, in your own words, the relative advantages and disadvantages of each of the three primary cost allocation methods (Direct Allocation, Step-Down Allocation, and Reciprocal Allocation).

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