MAnagerial Accounting Case Study

MAnagerial Accounting Case Study - The Chief Financial...

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Dean Search Professor Harris Managerial Accounting 20 November 2011 Case Study There is a 250-bed acute care hospital that currently operates a 25-bed mental health unit. The hospital’s management wanted to build a 50-bed freestanding psychiatric facility. When they finish that project they want to turn the mental health unit into rooms for medical/surgical use. The total cost was estimated to be six million dollars. Due to the fact that the substance abuse and psychiatric market have changed, management is unsure whether to go through with the project.
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Unformatted text preview: The Chief Financial Officer and the director of planning need to decide which option would be best for the hospital. Best Option The hospital’s management should go with the freestanding facility only if they can expect at least 326 additional medical/surgical admissions annually. The financial analysis shows that the freestanding should not be chosen unless the hospital is suffering from capacity constraints. Contribution margins are appropriate when considering two different choices that affect the business....
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