Bridgestone Behavioral Health Center: Cost-Volume Profit (CVP) Analysis for Planning and Control

Bridgestone is a comprehensive outpatient substance abuse treatment center located in the Midwest United States. Since 1985, Bridgestone has offered a continuum of outpatient services, including counseling, crisis intervention, detoxification, and methadone maintenance. The Bridgestone mission is to be a leader in healing and changing lives by providing high quality behavioral health care and rehabilitation to all individuals in need. With this mission, the Center promises to advance behavioral healthcare through the creation of innovative services and enriching the lives of patients one by one.

1a. Calculate the weighted average contribution margin percentage for the annual budget.

1b. Interpret your result from 1a. What are the implications of the result in 1a (e.g., high or low weighted average contribution margin percentage for the management of Bridgestone?

2a. Is Bridgestone able to breakeven? Calculate the expected profit/loss (e.g., over- or under-recovery). Which actions could Bridgestone take to improve the expected profit/loss?

2b. Bridgestone is concerned that they are running at risk to not breakeven. In your cost analysis class during your studies at Whitman/SU, you learned the concept of the margin of safety. Calculate the margin both as a dollar amount as a percentage and explain Dr. Russell what these numbers mean.

3a. Fixed costs can be discretionary or committed. Discuss which of the fixed costs in this case are discretionary or committed using the information from the text. Why is it important to differentiate between discretionary and committed fixed costs?

3b. Independent from your answer in 3a, assume that the following fixed costs are discretionary and can be reduced by 15%: Salaries & Benefits, Consulting Fees, Rent, and Transportation. All other fixed costs are assumed to be committed. What would be the impact on the breakeven point revenues?

4a. On its mission to become more sustainable, Bridgestone intends to replace its car fleet (conventional engines) with electric vehicles, which would increase the fixed costs of transportation by 50% due to higher maintenance costs. Calculate the impact on its expected profit/loss.

4b. Given your findings in 4b, should Bridgestone introduce a more sustainable means for its transportation tasks? Please include all indirect and direct benefits as well as direct and indirect costs in your discussion. An excellent answer for this question will be quite extensive.

5. Although Medicaid rates have not changed in the past to a larger extend, Dr. Russell is afraid that particularly the rate for Group Counseling might change in the future. He wants to understand how changes of the rate of the Group Counseling in the range of minus 20 to plus 20 percent compared to the budgeted rate of 40 USD affects the companys total operating income. All other values remain unchanged. You should illustrate your answer with a graph. For instance, you could show a line for operating income, which is a function of the selling price.

6a. Assume that fixed costs are assigned to each service based on the units of service a service is expected to have next year. Calculate the profitability (dollar amount and percentage) per service. You may lump all individual line items of fixed overheads together

6b. Based on your answer in 5a, for which services should Bridgestone start marketing campaigns to increase the service volume? Explain.

6c. Instead of allocating the fixed costs per units of service provided, Dr. Russell asks you to provide him the results for 5a and 5b assigning the fixed costs now proportionally based on the direct labor hours per service.

6d. Explain to Dr. Russell why activity-based costing might be a better approach to allocate overheads of Bridgestone instead of a simple costing system as applied in 5a-5c.

Ahnual Budget Bridgeibone Direct Labee Hours per week. 190 20 12 89 200 309 390 10 90 1040 Ahnual Budget Bridgeibone Direct Labee Hours per week. 190 20 12 89 200 309 390 10 90 1040