Question

1. Why do you think a healthcare organization might not have an actual funded depreciation account with money reserved for replacements, but instead only account for depreciation on the balance sheet? Is this a good practice in your opinion or one that will create problems?

2. Most of us would like to make money on services provided in healthcare, since that "profit" allows the organization to fund future development and plan for growth. As a Catholic sister many years ago told me - "No profit no mission." Doing a break even analyis allows us to see how many units of service or how many patients must be seen to pay for the costs involved in providing care. How might you use break even analysis to manage your department or service unit in a healthcare organization? For example in determining staffing levels or perhaps how much inventory to have on hand. Or perhaps in determining which services to offer and not. If doing that how do you cover needed services that may not break even or make a profit?

Answer 1

a) Funded deprecaiton refer where the cash equivalent to current year deprecation is set aside. This cash is than can be used for replacement of assets.

Now if the organisation is not parking the cash equivalent to depreciaiton and it is utlising elsewhere, it will find difficulty in replacing the assets.

Above is true for healthcare industry as well, organisation cant run effectively without proper business assets hence such practise may create issue in form of not timely replacement of assets or they need to arrange for additional funds to replace the assets. This can also results into not appropriate utilisation of cash generated as well.

b) Breakven point indicates minumum level of volume at certain price charged so that ensures no profit or loss. Even Healthcare organisation which may be working for "not for profit" they still have to consider this aspect so as to determine what activities they can carry out and if there is no break-even then whether to carry out the same or not. Whether to carry out or not particular activity would requires funding either generated from other activity or provided by donor.

When activity do not make break even, organisation may have to prioritise which activities to be carried out considering the availability of funds with them.