6:02 + Case 15.1 Bright Sky Hospita... Case 15.1: Bright Sky Hospital Key concept: Determining transfer pricing policy Mobile and entertaining arcus Olson, MD, was director of the Surgical Care Division of Bright Sky Hospital. The hospital had recently implemented responsibility coming guidelines for directors indicated that they should purchase services from other sin the hospital if possible Dr. Olson was reviewing the latest monthly budget and became concerned with the cost of various laboratory tests that had been purchased from Bright Sky Hospitals Laboratory Division, another profit center. One example involved complete blood count (CBC), which the Surgical Care Division billed out for $15 per tot. This test actually performed by the Laboratory Division, which charged the Surgical Care Derin $10 for the test. The 35 markup overcoat was intended to cover time spent by supplies needed for the CBC, and administrative time. Dr. Olson made a few phone calls and found that he could purchase the CBC from an outside lab for $7. He then called the director of Bright Sky's Laboratory Dev Misty Dawn, to discuss the apparently high" price for the CC and to request that Me Duwn meet the 57 external price. Mi. Dawn responded that the $10 price consisted of $5 of variable, Stof fixed costs, and a $1 profit margin. She stated that her division was operating under very tight budget and declined to lower the price. She said, "I lower the price, they division's net income will be lower, and I won't get my bonus money this year Dr. Olson responded, "With the volume of testing we wond to your lab and your high prices, there goes my bon money this year. I won't be robbed. I will just go ahead and use outside labs. Ms. Dawn then stated that she would lodge a complaint with Bright Sky Hope tal's financial vice president, Tom Terrific, f De Olson carried through with his threat to outsource. Dr. Olson the said he would schedule a meeting with Mr. Teeni 10 cm the problem After hearing from both parties, Mr. Terrific knew that the conflict would not go way without his intervention. He was concerned about the implications of his decision for other profit center departments in the hospital Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Question 6:02 + Case 15.1 Bright Sky Hospita... ... Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Question 1. In the table below, calculate cach profit center's financial performance under the two options, source internally or source externally Surgical Care Division Hospital Lab Division Bright Sky Hospital Own Option 1-Buy from Lab Division Revenue Variable cost Contribution margin Option 2-Buy from outside laboratory Revenue Variable cost Contribution margin Effect on Bright Sky Hospital of difference between options and 2. What should Mr. Terrific do about the price of the CBC (Hint: Consider buch kort run and long run implications) 6:02 + Case 15.1 Bright Sky Hospita... Case 15.1: Bright Sky Hospital Key concept: Determining transfer pricing policy Mobile and entertaining arcus Olson, MD, was director of the Surgical Care Division of Bright Sky Hospital. The hospital had recently implemented responsibility coming guidelines for directors indicated that they should purchase services from other sin the hospital if possible Dr. Olson was reviewing the latest monthly budget and became concerned with the cost of various laboratory tests that had been purchased from Bright Sky Hospitals Laboratory Division, another profit center. One example involved complete blood count (CBC), which the Surgical Care Division billed out for $15 per tot. This test actually performed by the Laboratory Division, which charged the Surgical Care Derin $10 for the test. The 35 markup overcoat was intended to cover time spent by supplies needed for the CBC, and administrative time. Dr. Olson made a few phone calls and found that he could purchase the CBC from an outside lab for $7. He then called the director of Bright Sky's Laboratory Dev Misty Dawn, to discuss the apparently high" price for the CC and to request that Me Duwn meet the 57 external price. Mi. Dawn responded that the $10 price consisted of $5 of variable, Stof fixed costs, and a $1 profit margin. She stated that her division was operating under very tight budget and declined to lower the price. She said, "I lower the price, they division's net income will be lower, and I won't get my bonus money this year Dr. Olson responded, "With the volume of testing we wond to your lab and your high prices, there goes my bon money this year. I won't be robbed. I will just go ahead and use outside labs. Ms. Dawn then stated that she would lodge a complaint with Bright Sky Hope tal's financial vice president, Tom Terrific, f De Olson carried through with his threat to outsource. Dr. Olson the said he would schedule a meeting with Mr. Teeni 10 cm the problem After hearing from both parties, Mr. Terrific knew that the conflict would not go way without his intervention. He was concerned about the implications of his decision for other profit center departments in the hospital Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Question 6:02 + Case 15.1 Bright Sky Hospita... ... Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Question 1. In the table below, calculate cach profit center's financial performance under the two options, source internally or source externally Surgical Care Division Hospital Lab Division Bright Sky Hospital Own Option 1-Buy from Lab Division Revenue Variable cost Contribution margin Option 2-Buy from outside laboratory Revenue Variable cost Contribution margin Effect on Bright Sky Hospital of difference between options and 2. What should Mr. Terrific do about the price of the CBC (Hint: Consider buch kort run and long run implications)
