Happy Medical Office provides primary care and laboratory services. The office staff consists of one physician, one nurse, one lab tech, and an administrative staff. Happy Medical rents its 20,000 square foot building, which is allocated 15,000 square feet to the medical office and 5,000 square feet to the laboratory office, for $96,000/year. Utilities for the facility average $1,000/month.
The clinic sees 6,960 patients per year, with 6,000 visits for medical and 960 visit for lab. Medical visits generate $70/visit and lab visits generate $40/visit. The physician and nurse work in the Medical Service and the Lab Tech works in the Lab Service. The Administrator works for the entire clinic.
Annual expenses are:
MD salary $100,000
RN salary $50,000
Lab Tech salary $30,000
Administrator salary $25,000
Rent $96,000
Utilities $12,000
General overhead $45,000
Medical supplies $10/visit
Office supplies $3/visit
General overhead includes administration, finance, maintenance, cleaning, marketing, etc., and averages $3,750/month. Medical supplies are used 80% for medical office visits and 20% for lab visits. Office supplies are used 92% for medical office visits and 8% for lab visits.
Complete the Profit & Loss (P&L) Statement for Happy Medical:
REVENUE
Medical Visits
Lab Visits
Total Revenues
EXPENSES
Salaries
Rent
Utilities
General Overhead
Medical Supplies
Office Supplies
Total Expenses
PROFIT (LOSS)
Which of these expenses are fixed and which are variable? Why?
We want to look at profitability by service (medical or lab) and need to allocate costs to do that accurately. What are the cost pools? What cost drivers would you use to allocate the cost pools?
Complete a P&L for each service:
REVENUE MEDICAL SERVICE LAB SERVICE
Medical Visits
Lab Visits
Total Revenues
EXPENSES
Salaries
Rent
Utilities
Medical Supplies
Office Supplies
Admin
General Overhead
Total Expenses
PROFIT (LOSS)
QUESTIONS TO THINK ABOUT
What do you think about your findings?
What if the head of each of the services (medical and lab) were paid a bonus based on financial performance?
Should you shut down the lab? Why or why not?
