Healthcare Finance

5.5 You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Revenues: $400,000

Wages & Benefits: $220,000

Rent: $5,000

Depreciation: $30,000

Utilities: $2,500

Medical Supplies: $50,000

Administrative Supplies: $10,000

Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 20 percent rate.

Construct the clinic’s projected P&L statement.

What number of visits is required to break even?

What number of visits is required to provide you with an after-tax profit of $100,000?

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Consider the following 2011 data for Newark General Hospital (in millions of dollars):

Look at the chart below and

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Calculate and interpret the profit variance
Calculate and interpret the revenue variance
Calculate and interpret the cost variance
Calculate and interpret the volume and price variances on the revenue side
Calculate and interpret the volume and management variances on the cost side.
How are the variances calculated below related?

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Static BudgetÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Flexible BudgetÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Actual Results

RevenuesÂ Â Â Â Â Â Â Â Â Â $ 54.7Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $4.8Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $4.5

CostÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4.1Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4.1Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 4.2

ProfitsÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.6Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.7Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 0.3

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