OPERATING AND NON-OPERATING COSTS AND REVENUES FOR TRAUMA CENTER

This document rearranges our variable and fixed cost information into the Operating and Non-Operating Costs that would appear on an Income Statement, so that a contribution margin and profit margin can be calculated. [Notice that Revenues are now shown in a right-hand column and costs are shown in a left-hand column.]

Operating Costs relate directly to patient care. Our previous labor costs, equipment costs, and a portion of the building cost are directly related to patient care and reported as Operating Costs. The remainder of the building and administrative costs are reported as Non-Operating costs. Health care facility Income Statements may report Non-Operating Revenue separately as well, since an accurate calculation of contribution margin requires that patient fees alone be set against the operating costs incurred to treat patients.

Operating Revenues:

Surgeries (patient fees) $8,456,210

Operating Cost:

Labor Cost: $3,774,852

Other Variable Cost: $ 487,078

Depreciation:

Building: $9,97,292

OR Equipment: $ 474,901

Ambulance (Basic and Advanced) $ 110,810

Interest:

Building: $ 153,429

OR Equipment: $ 73,062

Ambulance (Basic and Advanced) $ 17,048

$6,088,471 _______________

NET OPERATING REVENUE $2,367,739

Non-Operating Revenue

Grants and Donations $2114053

Non-Operating Cost:

Other Fixed Cost: $1,923,788

Depreciation: Building $ 887,902

Interest: Building $ 147,984

$2,959,674 _______________

NET EARNINGS BEFORE TAX $1,522,118

Tax $ 243,539

NET EARNINGS AFTER TAX $1,278,579

Question 1: Finding the Contribution Margin for the Trauma Center

Step One: The contribution margin is the proportion of Operating Revenues that remain after Operating Costs are paid. Divide the Net Operating Revenue by the Operating Revenue and express the quotient as a decimal (to the second decimal place or as a percentage.

What is the Contribution Margin?

Question 2: Finding the Profit Margin for the Trauma Center

Step One: The profit margin is the proportion of Total Revenues (Operating plus Non-Operating Revenues) that remain after all costs have been paid, including taxes. Divide the Net Earnings After Tax by the Total Revenue (sum of operating and non-operating revenues) and express the quotient as a decimal (to the third decimal place) or as a percentage (to the first decimal place).

What is the Profit Margin?

Question 3: Setting fees per overnight stay by their target contribution margin

(Do not use the Cost & Benefit numbers to answer this problem. Only use the numbers given in the question below.)

Let us suppose that a hospital wants to set their fees for an overnight stay such that the contribution margin on a hospital room will be 32%. The cost to the hospital of an overnight stay (staff, physical equipment, and supplies) is $410. What fee should they charge to obtain a contribution margin of 32%? [Hint: if the contribution margin is 32%, then the $410 cost is 68% of Operating Revenues.]

What is the target fee for an overnight stay? In other words, what must the Operating Revenues from that one room be?