Explain the difference between an accounting profit and an economic profit.

Assessment #2: Case Study of a health care organization’s profitability (15%)

In this assessment you will use the data provided below and conduct a profit (CVP) analysis. You will be graded based on your understanding of profit (CVP) analysis, the accuracy of your calculations, the validity of you conclusions and your ability to clearly communicate your analysis. To complete this assignment, follow these steps.

Assume the following information about cost and charges for a hospital in 2014: Fixed Costs = $10,000,000

Variable cost per inpatient Day = $200

Charge Per Inpatient Day = $1,000.

Review Nowicki Chapter 6 and Gapenski Chapter 5. From what you have learned in these chapters do the following: a) Construct the hospital’s base case projected profit and Loss statement

b) Explain the difference between an accounting profit and an economic profit

c) What is the hospital’s break even point?

d) Define the contribution margin? What is it’s economic meaning?

e) What volume is required to provide a profit of $1 million?

f) What volume is required to provide a profit of $500,000?

g) Explain in general how breakeven points vary in a capitated vs. non-capitated environment.

h) Now assume that 20% of the hospital’s inpatient days come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discounted proposal.

In submitting the above information, please show all calculations to get to the final answer and be sure to include a cover page with your name, class/section and instructor’s name

You will be graded base on the following rubric:


 

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