Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 59

Partial Operational and Financial Productivity; Medical Practice Comprehensive Medical Care (CMC) is a family medical practice with 6 physicians and a nursing staff of 8 to 10 nurses and an administrative staff that varies from 4 to 7 personnel. Jay Kloger, the chief physician at CMC, is interested in studying the efficiency of the practice as a basis to set some benchmarks for further improvement, for rewarding his staff, and for comparing the efficiency of the CMC practice to other family medical practices. He is able to get comparable data for other practices from industry sources. So that the data is consistent with the industry sources, Jay has asked Marin&Associates, his accounting firm, to develop a set of productivity measures that would satisfy this requirement. Upon investigation, Joseph Marin finds that the measures to be used are the partial financial and operational productivity measures as defined in the chapter. The following information is for the last two years for the CMC practice:

	2010	2009
Patient visits	30,000	27,600
Nursing hours used	18,675	18,600
Administrative hours used	12,225	12,500
Cost of nursing support per hour	$39.00	$37.50
Cost of administration per hour	$25.56	$23.50
Industry average financial productivity
Nursing	.035	.034
Administrative	1.120	1.140

Required

1. Compute the partial financial productivity ratios for nursing and administrative support for 2009 and 2010.

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2. Separate the change of the partial financial productivity ratio from 2009 to 2010 into productivity changes, input price changes, and output changes.

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3. Write a brief memo from Joseph Marin to Jay Kloger interpreting the findings above.

Step 1 of 2

1.,2. Partial operational and financial productivity and separation of partial financial productivity:

			2010			2009
	Patient visits			30,000			27,600
	Nursing hours used			18,675			18,600
Administrative hours used			12,225			12,500
Cost of nursing support per hour			$39.00			$37.50
Cost of administrative suppor per hour			$25.56			$23.50
	Total Nursing Cost			$7,28,325		=18,675 x $39		$6,97,500
Total Administrative Cost			$3,12,471		=12,225 x $25.56		$2,93,750
Financial Partial Productivity
	Nursing			0.041190		=30,000/728,325		0.039570
	Administrative			0.096009		=30,000/312,471		0.093957
Operational Partial Productivity				?
	Nursing			1.60643		=30,000/18,675		1.483871
	Administrative			2.45399		=30,000/12,225		2.208000
Current Output at Prior Year Productivity				?
	Nursing			20,217.39		=30,000/1.483871
	Administrative			13,586.96		=30,000/2.208

Decomposition of Partial Productivity (as done in Exhibit 16.5)
		A			B			C			D
	Output		Current output/			Current output/			Current output/			Prior output/
	Input Amount		Current Input x		Productivity		Cur. Ouptut at Prior Prod.		Input Price		Cur. Ouptut at Prior Prod.		Output		Prior Input x		Total
	Input Cost		Current input cost		Change		*Current input cost		Change		*Prior input cost		Change		Prior input cost		Change
	Output		30,000			30,000			30,000			27,600
	Input Amount
	Nursing		18,675			20,217			20,217			18,600
	Administrative		12,225			13,587			13,587			12,500
	Cost per unit of input
	Nursing		$39			$39			$38			$38
	Administrative		$26			$26			$24			$24
	Nursing		0.041190		0.003142		0.038048		(0.001522)		0.039570		-		0.039570		0.001621
	Administrative		0.096009		0.009624		0.086385		(0.007572)		0.093957		-		0.093957		0.002051