The Importance of Utilization (2)
Posted on July 5, 2009 - Filed Under Finance | 1 Comment
In our initial discussion of profit analysis, we introduced the concept of operating leverage, which is related to the cost structure of the organization— the higher the proportion of fixed costs, the greater the operating leverage. In a fee-for-service environment, high operating leverage means a low variable
cost rate and a high per visit contribution margin, […]
The Importance of Utilization
Posted on July 2, 2009 - Filed Under Finance | 1 Comment
Table 5.9 provides information on the impact of utilization changes on profitability. The center column, the base case, is once again our starting point. With an assumed utilization of four visits for each of Peachtree’s 18,750 members, 75,000 visits result in a projected profit of $419,038. However, if Atlanta’s managers are not able to limit […]
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