Bridgestone Case Analysis
1. CM/Total Rev = WACM
3,500,000/5,000,000 = .70*100 = 70%
2. A high WACM means that a high percentage of every dollar earned is profit. This means that Bridgestone is keeping the variable costs at a relatively small proportion of the total costs. The fact that the Margin of Safety is $9,000 out of $5,000,000 in revenue might be taken as an indication that they are not doing a good job of controlling overhead, depending on how you define overhead.
3. The CVP does allow you to come up with a breakeven plan. The question is will they be able to achieve a breakeven plan since they already have such a low Margin of Safety and general economic issues, ...view middle of the document...
6. Assessments = 80.88% CM
Urinalysis = 64.84 % CM
Case Management = 97.92% CM
Group Counseling = 83.20% CM
Individual Counseling = 88.81% CM
Crisis Intervention = 85.24% CM
Intensive OP = 11.59% CM
Medical Soma = CM
Meth. Maint. = 20% CM
Ambul Detox = 52.12%
You can consider eliminating Medical Soma by outsourcing it but that could cause difficulty with patient retention because they have to deal with (or potentially go to) two different entities to get prescriptions and services. There would be no way of ensuring both portions of the treatment are being addressed.
You could also consider making efforts to increase the delivery of the services with higher % CMs and/or dollar CMs.
7. The WACM percentage can be used to help control the actual operations of Bridgestone because it allows you to see which services provide a higher rate of contribution and which services cause a budget deficit. By having this information, Bridgestone knows how to target advertising, etc. and knows which services to promote and actively recruit more referrals. Also, when a comparison of the budgeted WACM and actual WACM occurs, a difference indicates changes in underlying cost structures, planned reimbursement rates, or changes in service mix. The individual contribution margins allow you to see how each category is operating.
8. Yes, the organization can still face losses if the budgeted WACM percentage is achieved but the total revenue drops or fixed costs increase. Cost-volume-profit analysis should be performed using the weighted average contribution margin ration (WACMR) because the WACM only gives you the breakeven numbers, it does not give you the numbers upon which to determine a profit. You must also remember to round these numbers up. A loss can also still occur if there is an increase of sales in items with a lower profit margin and a decrease in the sale of products with a higher profit margin. Thus, if your sales mix changes, there could be a loss.
9. A. Group Counseling...