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    Calculate the Operating Margin for a Medical Group

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    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%

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    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

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