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Houston Dialysis Center

Essay by   •  October 15, 2017  •  Case Study  •  420 Words (2 Pages)  •  1,526 Views

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The case study is looking to decide cost allocations for the House Dialysis Center, pharmacy, and Outpatient Clinic. Also, the case study explains there is a need for an increase in patients if the facility wants to increase revenue and begin expansion.

1. I do believe it is fair for Linda to lose her bonus due to the Outpatient Clinic (OC) requiring additional space. If we look at the numbers the Outpatient Clinic is expected to bring in greater profits than the Dialysis Center (DC). The OC has a full cost profit of $30,000 compared to the FCP of the OC, which is over $3.3 million. Linda sacrificing her bonus means the OC can increase the volume of patients by 25%, overall increasing full cost profit by approximately $1 million.

2. In my opinion, I do not stand by the hospital transitioning to true facility cost in regard to the new space. Cost based on square footage is simple and a more accurate method of measuring the costs of the facilities each year. Also, adjusting for optimal costs become easier. The disadvantage of this allocation scheme is if true cost ends up different than projected numbers, issues with revenue may affect the net profit of the facilities.

3. When the amount is paid in full by the end of the 20-year loan period and there are no longer costs associated with the facilities, the DC would see an increase in the overhead of the OC. This means that some costs would have to be covered by the DC.

4. I do believe that the DC with its expansion into the new building that is only two blocks away from the hospital complex would generate an increase in the number of patients. Increasing the number of patients would also increase costs and revenues. With the new facility, allocation to accommodate the increase in patients, staff, and equipment would have to be considered. This is still an acceptable option due to the increase in profit.

5. With my calculations, the pharmacy department should allocate part of its $400,000 revenue to the DC. The reasoning behind this is that part of the pharmacy revenue comes from the patients and referrals of the DC. If the DC did not collaborate with the pharmacy, then the pharmacy would not have experienced an increase in volume (patients & revenue). Ideally, negotiations between Linda (manager of DC) and the hospital (pharmacy) should begin to find some way to fairly distribute some of the pharmacy’s revenue to the DC, who distributes its clients to the pharmacy.

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