Cost-volume-profit analysis is what managers use to evaluate business decisions and its effects on profits (Davis et al., 2020). I manage a procedural area in a hospital. Cost-volume-profit analysis gets a little tricky for that department because the assumptions that have to be made to use this analysis does not really apply to the department. The assumptions when using CVP analysis include: all costs can be easily and accurate separated into fixed categories, a linear relationship exists between the expenses and sales activity, total fixed expenses and costs remain the same across all sales levels, and inventory is sold during the same period it is purchased (Davis et al., 2020). The assumption that total fixed expenses and costs remain the same across all sales levels is not one that I can make within my department.

In a procedural area, one cannot predict the volume of case flow throughout the year. There are trends that can be used from previous years, however it just depends upon the needs of the community. Insurance coverage is another reason for a lack of consistency with profit. Depending upon the insurance, the hospital may or may not receive as much money as someone who has a different kind of insurance. However, profit analysis is conducted based upon procedure and equipment. With new technology that comes out, there are several committees that get together to determine the clinical significance of using that product as well as evaluate it cost and potential loss in profit for the procedure itself. If a medical device proves too costly to where the hospital will lose a significant amount of money, the odds of getting it approved is slim.

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