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Calculate the Operating Margin for a Medical Group

Assess the information presented in the medical group statement of revenues and expenses and calculate the operating margin for fiscal year 2006.

FINANCIAL ACCOUNTINGâ?"STATEMENT OF REVENUE AND EXPENSES

Statement of Revenue and Expenses for Group Practice for Year Ending June 30, 2006

REVENUE

Patient service revenue $9,345,600

Less: Contractuals $3,364,200

Total Net Service Revenue $5,981,400

EXPENSES

Salaries $2,628,500

Fringe benefits $670,268

Temporary labor $150,000

Office supplies $78,000

Mortgage payments $195,000

Maintenance $32,900

Minor equipment $47,500

Insurance $36,200

Interest $23,200

Depreciation $178,000

Miscellaneous $15,000

Total Expenses $4,054,568

Net Income (profit/loss) Excess

Revenue Over Expenses $1,926,833 32.21%

Solution Preview

Operating margin is computed by dividing net operating income into net revenues. Mortgage payments are payments of a liability; thus, they should not be deducted as operating expenses. (However, the interest related to the debt is deducted as an operating expense.) Therefore, we need to add $195,000 to the net income. Generally accepted accounting ...

Solution Summary

This solution illustrates how to compute the adjusted net income and operating margin for a medical group.

$2.19