Understanding an Income Statement
Assessment #1: Understanding an Income Statement
You are an intern in a health care organization business office. Use the Dehew Health System income statement in the attachment, please develop a 4-6 page paper responding to the following questions regarding the income statement:
1. What is an income statement used for?
2. What are the key components of an income statement?
3. On your example of an income statement, is the organization making a profit or loss? How much is that profit or loss? Show the calculations. (Total Revenues – Total Expenses = Net Profit/Loss)
4. On your example of an income statement, what is the “total contribution margin”? Show the calculations. (Net Sales – Total Variable Costs=Total Contribution Margin). Also calculate the contribution per unit of service (UOS). If you are not using the sample financial statement you can use the assumption that volume is 15,000 UOS if not included in financial statements.
5. What three financial indicators does a contribution margin help determine? How?
6. What is a break-even analysis? What is the break-even point for this organization? List expenses assigned as variable and fixed. Show the calculations. (Net Operating Revenue – Variable Costs = Contribution Margin. Contribution margin/UOS = CM per UOS. Fixed Costs/CM per UOS = # of UOS to Breakeven).
7. How does a break-even analysis vary between fee-for-service and capitated payments? Explain it using the income statement you chose. What are the similarities and differences applicable to the Income statements in fee-for-service and capitated payment options?
The paper should not be more than 6 pages and should follow APA format, spelling and grammar. Include a cover page and reference page (not included in the page count). Make sure to properly cite and reference all the used sources. The calculations need to be shown as formulas using figures. Follow the mathematical rules while calculating numbers.
Acknowledgment: The Income Statement for the Dehew Health System was developed and contributed to HMGT 322 by Professor Rob Parker.
Total Contribution Margin= Net Sales-Total Variable CostNet Sales in our case= Net PT Revenue + Premium Revenue (recognized insurance revenue) Then Total Variable Cost is comprised of Supply expenses, postage/courier services, repair/maintenance, travel/seminars, equipment rentals (not lease), and ed. supplies TCM is straightforward. Break-even point: Total Revenue-Total Variable Cost -Total Fixed Cost (the rest of expenses+ deductions from revenue) Technically, the break-even point will be Total Revenue-(Total Operating Expenses + Deductions from Gross PT Revenue)Total Revenue =Gross PT Revenue+ Premium Revenue+ Other Revenue The statement has Units of Service listed on the bottom. However, it is not possible to calculate Total Revenue by a regular formula of Units*Unit Price as the price is PT specific.
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