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PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. most frequent pattern of semivariable costs is the step pattern, where the semivariable cost rises, flattens out for a bit, and then rises again. The step pattern of semivariable costs is illustrated in Figure 7-3. The horizontal axis of the graph shows number of residents in the Jones Group Home, and the vertical axis shows total monthly semivariable cost. In this graph, the behavior of the cost line resembles stair steps: thus, the “step pattern” name for this configuration. The most common example of a semi-variable expense in health care is supervisors’ salaries. A single supervisor, for example, can perform adequately over a range of rises in activity levels (or volume). When another supervisor has to be added, the rise in the step pattern occurs. Figure 7–3 Semivariable Cost—Jones Group Home. It is important to know, however, that there are two ways to think about fixed cost. The usual view is the flat line illustrated on the graph in Figure 7-1 . That flat line represents total monthly cost for the group home. However, another perception is presented in Figure 7-4 . The top view of fixed costs in Figure 7-4 is the usual flat line just discussed. The bottom view is fixed cost per resident. Think about the figure for a moment: the top view is dollars in total for the home for the month, and the bottom view is fixed-cost dollars by number of residents. The line is no longer flat but declines because this view of cost declines with each additional resident. We can also think about variable cost in two ways. The usual view of variable cost is the diagonal line rising from the bottom of the graph to the top, as illustrated in Figure 7-2 . That steep diagonal line represents monthly cost varying in direct proportion with number of residents in the home. However, another perception is presented in Figure 7-5 . The top view of variable costs in Figure 7-5 represents total monthly variable cost and is the usual diagonal line just discussed. The bottom view is variable cost per resident. Think about this figure for a moment: the top view is dollars in total for the home for the month, and the bottom view is variable-cost dollars by number of residents. The line is no longer diagonal but is now flat because this view of variable cost stays the same proportionately for each resident. A Health Care Finance: Basic Tools for Nonfinancial Managers ... 3 of 22 10/20/2016 2:56 PM
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PRINTED BY: [email protected] Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted.
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