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 third decimal place or as a percentage (to the first decimal place).

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 25%. The cost to the hospital of an overnight stay (staff, physical equipment, and supplies) is $530. What fee should they charge to obtain a contribution margin of 25%? [Hint: if the contribution margin is 25%, then the $530 cost is 75% of Operating Revenue or room fee.]

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)$8,656,210

Operating Cost:

Labor Cost:$3,649,458

Other Variable Cost:$470,898

Depreciation:

Building:$964,163

OR Equipment:$459,125

Ambulance (Basic and Advanced)$107,129

Interest:

Building:$ 148,333

OR Equipment:$70,635

Ambulance (Basic and Advanced)$ 16,481

$5,886,223_______________

NET OPERATING REVENUE$2,769,987

Non-Operating Revenue

Grants and Donations$1,731,242

Non-Operating Cost:

Other Fixed Cost:$2,070,565

Depreciation: Building$ 955,646

Interest: Building$ 159,274

$3,185,485$1,315,744

Tax$249,991

NET EARNINGS AFTER TAX$1,065,753

Question 1:

Find the Contribution Margin for the Trauma Center (show calculations)

Question 2:

Find the Profit Margin for the Trauma Center (show calculations)

Question 3:

What is the target fee for an overnight stay?