Question

1. a) The contribution income statement specifically identifies the contribution margin within the income statement. How does forecasting at three levels assist in determining whether the organization's contribution margin on future services benefit the organization?

1. b) What are the advantages to a healthcare organization benchmarking its services and costs to accepted standards of the industry? Do you think organizations use these benchmarks effectively?

Answer 1

1. a) The contribution income statement specifically identifies the contribution margin within the income statement. How does forecasting at three levels assist in determining whether the organization's contribution margin on future services benefit the organization?

In a contribution margin income statement, a company's variable expenses are deducted from sales to arrive at a contribution margin.

Contribution margin is essentially a company's revenues minus its variable expenses, and it shows how much of a company's revenues are contributing to its fixed costs and net income. Once a contribution margin is determined, a company can subtract all applicable fixed costs to arrive at a net profit or loss for the accounting period in question.

Contribution margin income statements, by contrast, are often presented to managers and stakeholders to analyze the performance of individual products or product categories. Companies can benefit from contribution margin income statements because they can provide more detail as to the costs and resources needed to produce a given product or unit of a product.

Regardless of how contribution margin is expressed, it provides critical information for managers. Understanding how each product, good, or service contributes to the organization’s profitability allows managers to make decisions such as which product lines they should expand or which might be discontinued. When allocating scarce resources, the contribution margin will help them focus on those products or services with the highest margin, thereby maximizing profits.

1. b) What are the advantages to a healthcare organization benchmarking its services and costs to accepted standards of the industry? Do you think organizations use these benchmarks effectively?

• Benchmarking is a term used to describe a rule or guideline by which others can be measured or judged. It's used as a point of reference from which an evaluation can be made.
  • Internal benchmarking occurs when an organization compares functions within its organization, looking at each area and evaluating how they are meeting the standards and goals that have been set for them. For example, if a hospital wants to improve handwashing and sanitizing practices to prevent infections, they may use internal benchmarking to evaluate current practices in each department and then set goals for 100% hand hygiene compliance throughout the hospital.
  • Competitive benchmarking occurs when an organization analyzes another organization process or similar service and compares that organization's goals or outcomes against their own. For example, a hospital that wants to improve patient satisfaction may compare how long their patients wait in emergency rooms before seeing a doctor to the median amount of time patients wait at competing for hospital emergency rooms before seeing a doctor.
  • Advantages Benchmarking gives voice to quality standards in healthcare. Healthcare organizations that have adopted a benchmarking process have found a way to identify strengths and weakness allowing a plan of action for improvement. Healthcare is made up of multiple stakeholders, and through benchmarking, each one can benefit from quality and safety projects for improvement.
• Yes, I think organisations use this benchmarks effectively. Anyone who’s taken part in benchmarking knows that it’s critical but not simple. Internally, it’s important to know that no part of your organization is falling behind the rest. Externally, it’s important to understand how those in the market around you are doing. And from a functional or generic perspective, it’s important to look past the similarities in company or industry to see how you could learn from a particular process.