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Chapter 33 : Costs, Budgeting, and Financial Decision Making

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Costs, Budgeting, and Financial Decision Making, Page 1 of 2

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Abstract:

Managers must understand and participate in cost accounting and budgeting. In addition, they must understand the principles of financial accounting and financial analysis in order to gauge performance, because “what gets measured gets managed.” This chapter provides an overview of these extensive and complex activities. The chapter explains the types and behaviors of costs, how to measure them, what data are needed to generate a cost analysis, and how to cost a basic laboratory test. It discusses relationships among cost, volume, and profits and calculates contribution margin and break-even point. The chapter also explains how to apply time value of money concepts to capital acquisition plans using net present value. It focuses on the three common types of budgets, the budgeting process, and how budgets are used to measure financial performance and to control costs. Finally, the chapter discusses how to calculate key financial ratios that reveal information about an organization’s financial health.

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33

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Figures

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Figure 33.1

Cost behavior. doi:10.1128/9781555817282.ch33.f1

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.2
Figure 33.2

Fixed, variable, and total cost. doi:10.1128/9781555817282.ch33.f2

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.3
Figure 33.3

Fixed, variable, and total expense and revenue. doi:10.1128/9781555817282.ch33.f3

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.4
Figure 33.4

Graphical representation of the break-even point for a hematology division. doi:10.1128/9781555817282.ch33.f4

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.5
Figure 33.5

Break-even point for equipment purchase. doi:10.1128/9781555817282.ch33.f5

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.6
Figure 33.6

Break-even point for a capitated contract. doi:10.1128/9781555817282.ch33.f6

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Image of Figure 33.7
Figure 33.7

Volume control chart. doi:10.1128/9781555817282.ch33.f7

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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References

/content/book/10.1128/9781555817282.chap33
1. Finkler, S. A. 1994. Cost Accounting for Health Care Organizations. Aspen Publishers, Inc., Gaithersburg, MD.
2. Horngren, C. T. 1984. Introduction to Management Accounting, 6th ed. Prentice-Hall, Inc., Englewood Cliffs, NJ.
3. Joy, O. M. 1983. Introduction to Financial Management, 3rd ed. Richard D. Irwin, Inc., Homewood, IL.
4. Pavlock, E. J. 1994. Financial Management for Medical Groups. Medical Group Management Association, Englewood, CO.

Tables

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Table 33.1

Key variables for a hematology laboratory with static volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.2

Test run calculation for a hematology laboratory with static volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
Generic image for table
Table 33.3

Cost calculation for a hematology laboratory with static volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
Generic image for table
Table 33.4

Key variables for a hematology laboratory with additional volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
Generic image for table
Table 33.5

Test run calculation for a hematology laboratory with additional volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
Generic image for table
Table 33.6

Cost calculation for a hematology laboratory with additional volume

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.7

NPV of direct purchase versus installment purchase

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.8

NPV of two different pieces of equipment

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.9

Staffing worksheet

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.10

Worksheet for constructing a budget

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.11

Variance report

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.12

Balance sheet for an organization as of September 2012

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.13

Income and expense statement for an organization, year-to-date September 2012

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.14

Cash flow statement for an organization, September 2012

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33
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Table 33.15

Ratio analysis for an organization, September 2012

Citation: Tolzmann G, Vincent R. 2014. Costs, Budgeting, and Financial Decision Making, p 597-618. In Garcia L (ed), Clinical Laboratory Management, Second Edition. ASM Press, Washington, DC. doi: 10.1128/9781555817282.ch33

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