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Cvp Analysis Bridgestone Health Centre By Ima

819 words - 4 pages

Case Study –
Bridgestone Behavioral Health Center: CVP Analysis for Planning and Control
Case Study –
Bridgestone Behavioral Health Center: CVP Analysis for Planning and Control

MEMO
To: Dr. Thomas Russell, Executive Director, Bridgestone Behavioral Health Center
From: Sheryl Marshall, Service Consulting Plus, LLC.
Date: 8th September 2014
Subject: Financial performance of Bridgestone Behavioral Health Center over the next one year.

Dear Dr. Russell,
After having done a detailed study of the projected financial statements for the upcoming year, we have been able to identify a few glaring financial pitfalls the center has to beware of. The center has a lot of government aid ...view middle of the document...

It cannot rely on Medicaid to increase revenues because the Medicaid rates & annual Medicaid funding is capped.
* The contribution margin in certain services like Intensive Outpatient, Methadone Maintenance is very low & is negative in Medical Somatic. This affects the contribution margin of the entire center thus reducing the profit levels of the center.
* The WACM of the center is high (i.e., 70%) which indicates a low variable costs for the services provided. This also helps in analyzing each services ability to generate income & absorb fixed costs.
* The fixed expenses of the center are exorbitant and are cutting into a major part of the contribution margin.

* The margin of safety for all the services is very low for the center. This indicates that the center is always at a risk of loss if there is any decrease in revenue or increase in expenses. It must also focus on the expenses that can be reduced.

We recommend a few changes in the working of the center along with suggestions on where you can save:-
* The center can reduce the discretionary fixed costs as these costs are in the hands of the manager. If the center reduces the discretionary fixed costs by 10% as shown below, the breakeven point decreases which would increase the margin of safety & in turn profits.
* This margin of safety for the center increases from $9000 to $349862 due to the reduction in discretionary fixed expenses.

* As seen below in the graph, the contribution margin...

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