1. The opening paragraph of an accounting textbook says “Managers need accounting information and need to know how to use it” Critically evaluate this statement.
2. Parkview Hospital Case Study
Parkview hospital, a regional hospital, serves a population of 400,00 people. The next closest hospital is 50 miles away. Parkview “s accounting system is adequate for patient billing. The system reports revenues generated per department but does not break down revenues by unit within departments. For example, Parkview knows patient revenue for the entire psychiatric department but does not know revenues in the child and adolescent unit, the chemical dependence unit, or the neuropsychiatric unit.
Parkview receives revenue from three principal sources, the federal govt(Medicare) the state govt(Medicaid), and the private insurance company (blue cross blue shield). Until recently, the private insurance companies continued to pay Parkview increasing cost and assed these on to the firm through higher premiums for their employees health insurance.
Last year Trans Insurance (TI) entered the market and began offering lower cost health insurance to local firms. TI cut benefit offered and told Parkview that it would pay only a fixed dollar amount per patient. A typical firm could cut its health insurance premium by 20% by switching to TI. TI was successful at taking 45% of Blue Cross Blue Shield customers. These firms faced stiff competition and sought to cut their health care costs.
Parkview management estimated that its revenue would fall 6%, or $3.2 million, next year because TI’s lower reimbursement. Struggling with how to cope with lower revenues Parkview began complex process of deciding what programs to cut, how to shift the delivery of services from impatient to outpatient clinics and what programs to open to offset the revenue loss (for example open an outpatient depression clinic).Management can forecast some of the costs of the proposed changes, but many of its cost and revenue (such as the cost of admissions office) have never been tracked on the individual clinical unit.
A) Was Parkview’s accounting system adequate 10 years ago?
B) Is Parkview’s accounting system adequate today?
C) What changes should Parkview make in its accounting system?
3. Darien Industries
Darien industries operate a cafeteria for its employees. The operation of the cafeteria require fixed cost of $4,700 per month and variable cost of 40% of sales. Cafeteria sales are currently averaging $1,200.00 per month.
Darien has an opportunity to replace the cafeteria with vending machines. Gross customer spending at the vending machine is estimated to be 40% greater than current sales because the machines are available at all hours. By replacing the cafeteria with vending machines, Darien would receive 16% of the gross customer spending and avoid all cafeteria costs. How much does monthly operating income change if Darien replaces the cafeteria with vending machine?
4. Negative Opportunity Cost
Can opportunity costs be negative? Give an example
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