BILLAIRE CLINICAL LABS

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York University *

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2700

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Accounting

Date

Apr 3, 2024

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Uploaded by CountPenguinMaster907

Radhika Goyal 220550521 Introduction The US market for clinical laboratory testing was valued at $30 billion in 1998. Bellaire Clinical Labs Inc. is a small, superb, independently owned clinical laboratory that is located outside of Boston, Massachusetts. It is privately owned. The lab provides three distinct client groups— doctors, particular patients, and third parties (Medicare, Medicaid, or a private insurance company)—with routine blood testing and specialty testing in combination with flexible pricing packages. Just a year ago, Marty Walters was chosen to be the operations manager of the lab because of his experience in implementing significant process changes to reduce the quantity of material use and waste and routinely praising employee actions to boost productivity. The net profit only increased by $6363 compared to the projected amount. The causes are still unknown and require close examination. Problem Statement How did Bellaire accomplish so many process improvements? succeeded in bringing in an extra US$ approximately one million in sales without experiencing a noticeable decline in profits? Why did a $1 million US sales increase result in a meager $6363 profit difference over the projected amount? Case Analysis Calculating the discrepancy between Planned and A Particulars Actual Revenue Planned Revenue Variance Result Net Revenue Routine Testing 11,676,904 12,160,000 (483,096) Unfavourable Specialty Testing 5,709,496 4,240,000 1,469,496 Favourable Total Net Revenue 17,386,400 16,400,000 986,400 Favourable Calculation of the net profit difference between the Actual and Budgeted amounts for the year ended in 1998. Particulars Actual Revenue Planned Revenue Variance Result Total Net Revenue 17,386,400 16,400,000 986,400 6.01▲ Less: Material 2,760,000 2,700,000 (60,000) 2.22▲ Labour Routine 2,273,981 2,402,400 128,419 5.35▼ Labour Speciality 2,731,456 2,028,000 (703,456) 34.69▲ Depreciation 3,503,000 3,500,000 (3000) 0.09▲ Other costs of testing 1,120,000 1,100,000 (20,000) 1.82▲ Billing and collection costs 2,080,000 1,850,000 (230,000) 12.43▲

Radhika Goyal 220550521 Advertising and promotion 892,000 820,000 (72,000) 8.78▲ Management salaries 710,000 700,000 (10,000) 1.43▲ Other administrative costs 510,000 500,000 (10,000) 2.00▲ Net profit 16,580,437 15,600,400 6,363 0.80▲ Results  The overall sales revenue increased by 986400 $, nearly one million USD, or about 6% above the budgetary limits.  Specialty labor costs increased by about 35% compared to the annual budgeted amounts.  Following specialty labor expenses from their budgeted ones, billing and collection costs saw the second-highest increase. They exceeded the anticipated allotted limits by 12.4%.  Less than 10% more was spent on other expenses compared to the actual amounts allocated in the budget. Contributing Elements 1. No. of Tests Particulars Planned Actual Variance No. of Tests 1,000,000 1,030,000 30,000 With the exception of the higher profitability factor, a significantly higher number of tests with underestimated budgeted variable expenses only increased revenue. 2. Routine Test % Particulars Planned Actual Variance % of Test 74% 80% 6%▼ No. of Tests Performed 762,200 800,000 4.73%▼  Significantly fewer routine tests than scheduled tests indicate fierce competition in the market for this market segment. Bellaire did not alter their prices, though. As a result, it increased the planned budgetary limits beyond their real value by more overestimating labor costs. Consequently, even though total revenue exceeded expectations at its peak, the profitability factor remained low.  Bellaire underperformed on testing by 6%. Bellaire's routine revenue fell short of their projected amount by 4.73%. Particulars Planned Actual Variance % of Test 26% 20% 6%▲ No. of Tests Performed 276,800 200,000 4.73%▲ Speciality Test

Radhika Goyal 220550521 Particulars Planned Actual Variance % of Tests by Physicians 44% 50% 6%▼ % of Tests by Patients 20% 20% 0%▲ % of Tests by Other Parties 36% 30% 6%▲  Bellaire generated 34% more revenue than anticipated despite underestimating by 6% the planned budget amount of specialty tests conducted. The price package bracket for specialty tests was higher ($20, $22, $23), and the labor costs were higher ($19.6 per hour). Routine tests, in contrast, were priced in the package range of $14, $16, and $17, with lower labor costs of $8.22 per hour.  The variable labor costs increased when the number of speciality tests was significantly higher than the one budgeted for. As a result, it took up a sizable portion of the cost factor, and increased revenue did not significantly increase profit.  Higher billing and collection costs from pre-budget tests result from performing more specialty tests than budgeted.  Third-party billing also takes the longest in terms of administrative work. Recommendations  Price increases in response to high demand: Bellaire should have been the one to raise costs in response to high demand for specialty testing. They may have been able to offset the high labor variable costs for the specialty tests and enhanced profitability as a result.  Develop a successful cost-cutting plan by bringing other costs under control and reducing unnecessary spending, as labor costs are comparatively high. Reducing the excessive amounts of unnecessary advertising expenses is necessary.  Research & Analysis: Bellaire needs to make sure that their pricing packages are tailored to the specific market conditions at the times that they are supposed to be created.  Formal Human Resource Management: Bellaire must keep an eye on and responsibly manage its human resources. Conclusion Every company wants to grow in terms of both revenue and profit. Any organization would be happy to see Bellaire achieve a one-million-dollar revenue increase over budget. But it seems that its enormous promotional expenses and rising variable labor costs are preventing it from turning a profit. To mitigate these evident shortcomings, suitable management techniques and strategies need to be implemented.

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