Question

Part 1) Discuss the relationship between hospitals' profitability and their performance at managing two components of working capital: accounts receivable, measured in terms of hospitals' average collection periods, and accounts payable, measured in terms of hospitals' average payment periods.

Part 2) How would you describe the composition and purpose of responsibility centers?

Answer 1

PART1

ACCOUNT RECEIVABLE IS IMPORTANT COMPONENT OF WORKING CAPITAL THAT PAYMENT TO BE RECEIVED WITHIN ACCOUNTING PERIOD.IT MAY AFFECT PROFITABILITY OF HOSPITAL .IF PAYMENTS RECEIVED ARE IN TIME THEN HOSPITAL CAN AVOID INTREST ON PAYMENT TO BE DONE AND CAN EARN INTEREST ON IT AND CAN INVEST IN OTHER PROFITABLE OPPORTUNITIES SO PAYMENT RECEIVED IN TIME CAN INCREASE PROFITABILITY IF RECEIVED IN TIME

.BUY PAYING IN TIME TO OTHER RELEVANT PARTIES WILL INCREASE GOODWILL IN FUTURE. ALSO CAN ENJOY HUGE DISCOUNTS IF PAID IN ADVANCE.

IF NOT RECEIVED IN TIME THEN INTEREST MAY HAVE TO BE PAID AND IF PENALTIES ARE THERE FOR LATE PAYMENT THEN THEY ARE TO BE PAID.LOOSE OTHER PROFITABLE OPPORTUNITIES AND ALSO MAY LOOSE DISCOUNT AND ALSO LATE PAYMENT MAY CONVERT INTO DEFAULT IN PAYMENT ALSO.LATE PAYMENT TO RELATED PARTIES WILL CAUSE LOSS OF CREDIT. THERE IS HUGE IMPACT OF PROFITABILITY OF COMPANY.

PART2

RESPONSIBILTY CENTRE ARE CENTRE WHICH HAVE SPECIAL OBJECTIVES AND DEDICATED STAFF FOR THAT OBJECTIVE TO ACHIEVE THERE ARE THREE RESPONSIBILITY CENTRE EXPENSE CENTRE,REVENUE CENTRE,PROFIT CENTRE AND INVESTMENT CENTRE.

EXPENSE CENTRE FOCUSES ON EXPENSES

REVENUE CENTRE FOCUSES ON REVENUE COLLECTION

PROFIT CENTRE FOCUSES ON INCREASING PROFIT

INVESTMENT CENTRE LOOK FOR INCREASING PROFIT BY PROPER INVESTMENT STRATEGY.