Question

What is the strategic role of CVP analysis for the cardiac catheterization unit of the Ramalah Hospital? After reading the article, locate the latest annual report, using EDGAR or Yahoo! Finance, for a different type of service organization. In your initial post to the discussion, you will include a link to the annual report. Discuss the following:

What key differences can you identify between the organization you researched in the strategic role of CVP analysis and the cardiac catheterization unit identified in the article?

What do you attribute this difference to? Are there any major semi-variable or mixed costs that complicate CVP analysis?

Since you will not be able to derive the actual costs to derive a break-even point, include in your discussion and analysis, the identification of the main cost items used to calculate fixed costs. Additionally include in your analysis how you would calculate the unit variable costs.

Service organization of choice: financial instution TD Bank, here is the annual report for 2017:

https://www.td.com/document/PDF/ar2017/ar2017-Complete-Report.pdf

Here is the article for the Ramalah Hospital:

https://pdfs.semanticscholar.org/4eab/f85e2ab3d13c8614de0b0f4762afae07a050.pdf

Answer 1

1. The Strategic Role of CVP Analysis :

Cost-volume-profit (CVP) analysis allows hospital management to discern the probable effects of changes in sales price, productmix, or sales volume.We focus on CVP analysis of the cardiac catheterization unit of the Ramallah hospital during 2003. Cost allocation involves the transfer or allocation of costs from one department to another.These cost allocations assist in determining unit price, which can be used for price setting. Cost allocations also help determine the relationship of total revenue and total cost for a department or service, and to determine profitability on a product line or departmental basis. In health care, most allocations involve cost transfers from overhead centers (non-revenue department) to revenue centers (revenue department).
The costs of any overhead departments are distributed to the intermediate and final service departments through a step-down method,according to allocation criteria devised to resemble as closely as possible the actual use of resources by each of the departments.The step-down method is a more advanced cost findings technique than the direct distribution method because it involves the distribution of costs from overhead departments and finally to intermediate and final service departments.
The step-down cost accounting (SDCA)
approach identifi
es the range of resources
needed to run a facility, and then assigns
these resources to chosen “cost centers” on
an allocation basis. Those costs in turn filter down until the final cost centers of interest
are left. The following are necessary considerations to compute unit costs:
1. Rank the support cost centers in order;
the one that is consumed the most by
others would be ranked the first, and
next would be the second;
2. Allocate direct costs from the fi
rst rank
down unit, the last support cost center;
3. Allocate denominators—the sum of
allocation criteria of all cost centers
that are not yet allocated; and
4. Never allocate back to the previous
support cost centers.

2. Followings are the costs that complicated the CVP Analsis :

1. Cost of medical equipment;
2. Cost of furniture and equipment;
3. Salary of doctors, nurses, and all staff
in the cardiac catheterization unit
4. Overhead allocation from overhead cen-
ters to the cardiac catheterization unit.
For the purpose of the analysis, they are considered as Fixed Costs