# "Cost Control" Please respond to the following: • Use the Internet or Strayer Databases to research “cost escalation” within the health care segment. Next, determine one (1) key driver of health care cost escalation. Indicate one (1) strategy health car

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 HSA525 Week 3, Lecture 2:  Cost Behavior and Break-Even Analysis Slide # Scene/Interaction Narration Slide 1 Scene 1: Professor Quan introduces the lecture topics and then begins to lecture on profit and loss. HSA525_3_2_1_ProfQuan-1: Hello, during this lecture, we will cover the concept of breakeven analysis. Certain techniques can be applied when analyzing the relationships among cost, volume, and profit. The techniques rely on categorizing costs as fixed and variable.  HSA525_3_2_1_ProfQuan-2:  We discussed during the previous lecture that fixed costs are those that remain constant irrespective of changes in volume, while variable costs fluctuate with changes in output or volume.  HSA525_3_2_1_ProfQuan-3: Profits within a healthcare organization are influenced by several factors including rates, volume, costs, payer mix, and bad debt. HSA525_3_2_1_ProfQuan-4: Managers must understand how these factors support the organization’s financial goals. A Breakeven analysis is used to estimate the volume at which a business, department, or service becomes financially self-sufficient or cost and revenue are equal.  HSA525_3_2_1_Lauren-1: Professor, what is the relationship between breakeven and cost volume profit analysis? HSA525_3_2_1_ProfQuan-5: The breakeven analysis is often referred to as the cost volume profit analysis. To calculate the breakeven point, let’s look at the following example.  HSA525_3_2_1_ProfQuan-6: Let’s assume that Horizon Health has variable cost per case of one-thousand dollars. Horizon’s fixed cost per period equals one-hundred-thousand dollars and its price per case is two-thousand-four-hundred dollars.   HSA525_3_2_1_ProfQuan-7: To determine its breakeven point, we must divide its fixed costs by the contribution margin, which is calculated as price minus variable costs. In this example, the break even volume in units would equal -seventy-one-point-four cases.  HSA525_3_2_1_ProfQuan-8: If the volume exceeds the number of cases at breakeven, the organization would show a profit…likewise, if the number of cases goes below seventy-one, there would be a loss.  HSA525_3_2_1_Sophia-1: Professor, so the contribution margin is used in the breakeven analysis? HSA525_3_2_1_ProfQuan-9:Yes, just remember that the contribution margin is the difference between price and variable costs. The contribution margin is the amount that remains to cover fixed costs. Once the breakeven point has been reached and the fixed costs have been covered, each subsequent unit contributes to profit.  HSA525_3_2_1_ProfQuan-10: Let’s take a closer look…. Slide 2 Scene 2: Professor Quan demonstrates a real life example. HSA525_3_2_2_ProfQuan-1: Let’s consider the following example… Assume the following for Horizon Medical Supply: Fixed Costs, twenty-thousand dollars; Selling Price, one-thousand dollars; and            Variable Cost, six-hundred dollars. What is the breakeven point in units?  Let’s calculate! HSA525_3_2_2_Lauren-1:  I think that we will first need to consider the fixed costs to the contribution margin….to arrive at fifty units. My calculations are twenty-thousand dollars divided by four-hundred dollars. That will equal fifty units… HSA525_3_2_2_ProfQuan-2: Tyler, what did your calculations show? HSA525_3_2_2_Tyler-1:  I arrived at the same conclusion as Lauren. HSA525_3_2_2_Sophia-1: So did I…. HSA525_3_2_2_ProfQuan-3: That’s great…now, can you compute the breakeven point in dollars using the same information? HSA525_3_2_2_Sofia-2:  I believe that the breakeven point in dollars will equal fifty-thousand dollars. I came to that conclusion based on the breakeven units of fifty times the price, which is one-thousand dollars. HSA525_3_2_2_ProfQuan-4:  Very nicely done….now, Tyler would you care to calculate the contribution margin as a percent for us? HSA525_3_2_2_Tyler-2: Sure…(pause)…If my calculations are correct, the percentage would equal forty-percent, or price minus volume divided by costs. Slide 3 Scene 3: Classroom discussion between professor Quan and the students. HSA525_3_2_3_ProfQuan-1:  Great job! Now, what inference can the manager make as a result of the information?  HSA525_3_2_3_Tyler-1: The contribution margin tells the manager how much money will be available to cover fixed costs and subsequently profit once the breakeven point is met.  HSA525_3_2_3_Sophia-1:  The contribution margin also shows how costs behave and it helps the manager with planning. HSA525_3_2_3_Lauren-1: I would like to add to Sophia’s comments that it is important to understand how volume changes influence revenues, costs, and even profit. HSA525_3_2_3_ProfQuan-2: What are some of the limitations of the Cost Volume Profit, CVP, or breakeven, analysis? HSA525_3_2_3_Lauren-2: I think that a significant limitation involves the assumption that price of a service or good will remain the same. This could be a potential problem as prices will need to be adjusted based on several factors and in healthcare, there are so many fee schedules to consider.  HSA525_3_2_3_ProfQuan-3: Excellent….any other comments? HSA525_3_2_3_Tyler-2: I think that another limitation would involve the length of time used…I think that breakeven analysis is a great tool, but should not be used over the long term. HSA525_3_2_3_ProfQuan-4: That is interesting…can you share more of your thoughts? Why should a breakeven analysis be used only in the short term? From your perspective, what constitutes short term? HSA525_3_2_3_Tyler-3: Professor, I would say that because of the changes in price, for example, the use of breakeven should be limited to one year. HSA525_3_2_3_ProfQuan-5: That is a great point, Tyler… HSA525_3_2_3_Lauren-3: I agree with Tyler because of the constant changes in the environment in which the healthcare organizations operate, one period or year would be best. Slide 4 Check Your Understanding:Calculate the breakeven point in units for the following….Assume fixed costs of    \$10,000Selling price  \$100Variable cost  \$20What is the breakeven point in dollars?A. \$10,500B. \$11,500C. \$12,500 A. Is incorrect …. Breakeven points in units to be calculated first at Total Fixed Costs/ (price -   variable costs) = 125 units; Then, calculate b/e in dollars 125 x \$100 = 12,500 B. Is incorrect: Breakeven points in units to be calculated first at Total Fixed Costs/ (price -   variable costs) = 125 units; Then, calculate b/e in dollars 125 x \$100 = 12,500 C. Correct….Breakeven points in units to be calculated first at Total Fixed Costs/ (price -   variable costs) = 125 unitsThen, calculate b/e in dollars 125 x \$100 = 12,500swer feedback: Slide 5 Scene 4: Summary HSA525_3_2_4_Prof.Quan-1: Well, we have concluded another lecture…do you have any questions about any of the material that we have covered?  HSA525_3_2_4_Lauren-1: No, I think that I have a good understanding of how the concepts are applied. HSA525_3_2_4_Sophia-1: No questions, I think that putting the information into the context of how it will be used is helpful HSA525_3_2_4_Tyler-1: None at this time….thanks HSA525_3_2_4_Prof.Quan-2: If there are no questions, we will adjourn. During our next lecture, we will cover the concepts of Inventory and Depreciation.

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### "Cost Control" Please respond to the following: • Use the Internet or Strayer Databases to research “cost escalation” within the health care segment. Next, determine one (1) key driver of health care cost escalation. Indicate one (1) strategy health car

these are the lectures that go with the discussion

 HSA525 Week 3, Chapter 6, Lecture 1 Script: Cost Classifications Slide # Scene/Interaction Narration Slide 1 Scene 1: Professor Quan …