Health Care Services Reimbursement
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Health Care Services Reimbursement
Find the fixed and variable portion of costs using the high-low method.
High low method is among many techniques used in splitting mixed costs to its components of fixed and variable costs. It is the easiest method to understand but least reliable method since it is not accurate. High-low method uses two extreme activities from the actual information such as a certain statistics collection data and the corresponding costs (total) figures (Kinney, 2013). The figures collected are used in finding and breaking down the cost volume formula, which is:
Y= a + bx
To find total cost first we need to find the variable cost:
Variable cost rate = change in costs
Change in activity
=961,740-825,375
7,020-5,325
=136,365
1,695
= 80.45 dollars per patient.
To find the fixed cost, we need to work out:
The fixed cost is determined by the variable cost of $80.45. Here is the formulae for computation:
Fixed cost = Total cost – Variable cost
At the maximum level of activity this will be:
X = $961,740 – (7,020 x $80.45)
=$961,740 – $564,759
=$396,981
The result will be the same if we used the minimum level of activity
X = $825,375 – (5,325 x 80.45)
= $825,375 - $428,396
= $396,981
In summary, the patient pays $80.45 dollars in every session and the gastroenterology clinic incurs a cost of $396,981 dollars every month to offer the services.
Calculate the contribution margin, the contribution margin ratio, and the per-visit revenue, costs, and operating income.
Contribution margin the same as the sales revenue minus the variable cost. The contribution margin is the amount of money left (revenue) which is used to cover the fixed cost make a profit for the company.
Fixed cost = total cost – variable cost
$ (396,981x12) = $11,052,981 – variable cost
Variable cost = $6,289,209
The total annual clinic cost is:
945,700+946,660+880,934+927,972+944,250+914,400+949,088+959,760+942,138+825,375+854,964+961,740= $11,052,981
The total clinic revenue is given as $ 14,550,400
Total sales revenue is …$14,550,400…. ratio (percentage) 100%
Less variable costs of …$6,289,209… ratio (percentage) 43%
Contribution margin… $8,261,191… ratio (percentage) 57%
Less fixed cost… $4,763,772
Profit … $3,497,419
The contribution margin ratio is that percent sales left when variable costs have been deducted. It helps in comparing the profitability of products produced and sold.
From the above, the contribution margin ratio is 57% of the total sales revenue.
i.e. ($8,261,191/$14,550,400). Meaning for every 1-dollar increase in sales the contribution margin always increases by 0.57 dollars.
Discuss the importance of computation of the contribution margin in ...