Introduction to Healthcare Finance and Accounting

MHA 525

Home #2 Chapter 5-6

5.1) Explain the differences between fixed cots, semi fixed cots, variable costs?

Costs- can be classified by their relationship to the amount of services provided and relationship to unit (department) being analyzed. Cost does not equal cash flow.

[Cost – referred to as activity, utilization or volume]

Variable Costs are those costs that are expedited to increase and decrease with volume ( patient days, number of visits, gloves, syringes needed…)— in total variable costs the cost rate remains the same.

Fixed Costs are the costs that are expected to remain constant regardless volume within some relevant range = ( is the range output [volume] over which the organizations cost structure holds)

Semi-fixed costs are those that are fixed at two or more values within the relevant range. IA semi fixed cost is one that is [ fixed over some range of volume but the range is smaller than the relevant range used in analysis. Page 154 book 5.3 shows this ( complex ).

5.3) A. What is cost volume –profit (CVP) analysis? B. Why is it so useful to health service managers?

A. Cost Volume Profit (CVP) is used to assess the effects of volume changes on costs- lets managers of alternative assumptions regarding costs, volume, processes. Total costs= Fixed + Total variable costs

Cost-Volume-Profit (CVP) analysis is a managerial accounting technique that is concerned with the effect of sales volume and product costs on operating profit of a business. It deals with how operating profit is affected by changes in variable costs, fixed costs, selling price per unit and the sales mix of two or more different products. B. It useful to health care mangers in analysis in these groups listed below
All cost can be categorized as variable or fixed, profit, Sales