1. As the cardiology director, you have enjoyed the position you hold in the organization. Everyone knows that your area “always makes money.” This perception was generated by the cost-accounting reports generated and distributed by finance.

You knew that your area has had stable volumes and payer mix, so you were surprised when your finance liaison called to tell you that the past month’s data are not looking all that good. She wanted to give you a heads up prior to the directors’ meeting at the end of the week. She said that the reports were not ready to be distributed, but she shared the following information.

• Volume of service and payer mix had not changed and this did not appear to be a revenue problem.

• Procedures were at target and not significantly different, with 378 procedures done.

• Net revenue was the same as the running average at $3,201,875.

• Expenses seemed out of line with the recent past trends, with the direct labor expense at $1,280,500 and supplies expense at $1,205,867.

• Indirect expenses, which are allocated on the basis of patient volume, were down slightly from historical trends and were $730,254.

She told you that the recent overhead reduction initiatives have been successful and this decreased these allocations.

What is the contribution margin for the past month? Has this improved or worsened compared to historical trends?

a. What is the ratio of labor expense and direct expense to net revenue?

b. What is the net margin?