1. One method for evaluating a division is ROI, or return on investment, which is profit/investment (Schneider, 2012). Schneider (2012) believes that ROI can be a problem even if it is used for all divisions because the profit number for each division may be based on different things, thus comparing them for different departments may not lead to an accurate comparison of ROI numbers. In order to compare between divisions, allowances would have to be made for the difference in profits used.
The second method for evaluating a division is residual income. “Residual income is defined as the operating profit of a division less an imputed charge for the operating capital used by the division” (Schneider, 2012). Again, the problem with using this for comparison is that the different divisions will have a different percentage of operating capital and will make different levels of profit. I think it would be simpler to use this method because the problem could possibly be overcome by using a percentage rather than a monetary unit as measurement. The percentages could then be compared to yield a more accurate idea of how the divisions compare.
The third method is called economic value added. Very simply, this is the value each division adds to the company as a whole (Schneider, 2012). This method is similar to residual income, but research and development are treated as depreciable assets rather than expenses, which leads to managers being less likely to cut research and development in order to cut expenses (Schneider, 2012).
Schneider, A. (2012). Managerial accounting: Decision making for the service and manufacturing sectors. San Diego, CA: Bridgepoint Education.
2.Rate of return on investment is widely accepted as the primary measure of performance for investment centers (Schneider, 2012). Return on investment (ROI) is defined as a ratio: Return on investment = Profit / Investment (Schneider, 2012). All divisions may similar but have different accounting methods. Trying to calculate all divisions with the same accounting method may cause incorrect data. Implementing the ROI concept raises a number of issues. Problems exist in defining the profit numerator as well as the investment denominator. Even then, divisions within acompany may be dissimilar, creating “apples and oranges” comparisons (Schneider, 2012). Once a profit figured has been chosen management must decide what all it will be evaluating.
Division net profit, Segment margin, and division controllable margin all can be used to calculate profit. Division net profit is used best to measure a division. One negative in the measurement is that it includes overhead. Segment margin is defined as total division revenue less direct costs of the division .(Schneider, 2012). Division controllable margin is defined as total division revenue less all costs that are directly traceable to the division and that are controllable by the division manager.
3.1. Identify the activities in the doctor’s office that fall into process time, inspection time, move time, wait time, and storage time.
Process time- check in with the receptionist, The patient returns to the receptionist to pay for the office visit and schedule the next visit.
Inspection time- Patient must weigh in/assigned to a room, The nurse also takes an initial blood sample for blood sugar testing and performs a blood pressure test, the nurse returns to take more blood samples, depending on what is ordered by the doctor.
Move time- the patient moves from waiting room to inner offices,
Wait time- waits to be called by nurse, patient is waiting while nurse assigns room and gathers all personal data, The patient then waits until the doctor comes in, The patient then waits until the dietitian comes to review eating habits and talk about how to improve meal planning and weight control.
2. List the activities in the doctor’s office that are candidates for nonvalue-added activities. Explain why you classify them as nonvalue-added activities.
After the patient checks in they must wait for a nurse to call them to the inner office. This wait time is nonvalue. If the doctor’s office did a better job of scheduling the wait could be eliminated. The patient must wait to be assigned a room then wait for the doctor to come. After the doctor leaves the patient has to wait on the dietitian which also is non-value. Anytime a patient or product is just sitting and not being used it is of nonvalue.
4.
Process time is the time spent in production (Schneider, 2012). In the doctor’s office, the weigh in, meeting with the doctor, and meeting with the dietitian could be categorized as process time. Inspection time is time spent ensuring that the product or service meets standards (Schneider, 2012). This could include check in, gathering medical information, and blood tests could be categorized as inspection items. Move time is the time it takes to move items from one part of production to another – moving the patient into the inner offices and back out for payment and appointment scheduling fall here (Schneider, 2012). Wait time is essentially downtime – waiting in the waiting room, for the doctor and for the dietitian (Schneider, 2012). Finally, storage time is the time an item spends before being shipped out, in this case the payment phase (Schneider, 2012).
According to Schneider (2012), wait time is the most significant area where non-value added activities happen. In this case, no information is provided regarding the average wait times in the waiting room, for the doctor, and for the dietitian. In a well run office, these would be short times. To use a personal example, I feel that my doctor’s office does very well in this regard. I have been to appointments different times of the day and have never waited for more than five minutes in the waiting room, and then never more than an additional five minutes for the doctor to meet with me, so this feels like a reasonable average wait time. If the doctor’s office in question tends to get behind as the day progresses, more time could be scheduled between appointments as a way to alleviate wait time for patients – this will improve customer appreciation, as well.
Another option that could cut some non-value added time is to shift payment and appointment rescheduling to a company website. Almost all of the time required for employees to be involved in this task would be cut, as the patient is providing payment information and it can be processed electronically, then requesting an appointment time that merely needs confirmation.
Schneider, A. (2012).Managerial accounting: Decision making for the service and manufacturing sectors. San Diego, CA: Bridgepoint Education
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