Bridgestone Behavioral Health Center: Cost-Volume-Profit (cvp) Analysis for Planning and Control

Bridgestone Behavioral Health Center: Cost-Volume-Profit (CVP) Analysis for Planning and Control

The Executive Director and Accountant of Bridgestone were discussing the importance of being able to understand better the operating and financial performance of the company. The company engages in providing prevention, intervention and treatment for people with substance problems. The company experienced a loss during the prior year but a profit of $7,000 is expected in the current year.

Here goes a conversation between the executive director and Accountant:

Thomas (Executive Director): According to the financial reports that you have prepared, we have been fighting to reach breakeven over the past three years. We have been able to just get past breakeven recently, but I am worried--it seems like only a slight variation in our operations could throw us into an operating loss. I've been actively involved in managing the Center, and I don't understand how we avoid showing a loss!

Susan (Accountant): Unfortunately, I have no oversight with respect to monitoring performance since my job is to input the financial and units of service numbers into the accounting system as they occur. I am currently working more than 40 hours a week so I am not sure what else I could do. Maybe we can hire someone like a consultant to help us?

Thomas: In reality, securing some outside assistance seems to be a good option to avoid future losses. Since my training is in psychology, I don't have the accounting background to take the task on myself. We need someone who specializes in financial management for nonprofit human service organizations.

The company is located in Midwest US and have been operating since 1985. Their mission is to be a top provider of high quality behavioral health care and rehabilitation to all individuals in need. They have a highly qualified executive director and an outstanding support staff. The company maintains a low client-to-staff ratio which is one of the reasons for the company's success.

The company provides 10 services that are designed to treat the substance dependencies of patients. These are: Patient Assessment, Lab Urinalysis, Case Management, Group Counseling, Individual Counseling, Crisis Intervention, Intensive Outpatient, Medical Somatic, Methadone Maintenance and Ambulatory Detoxification.

A Medicaid on behavioral health services is provided in Ohio and the services offered by Bridgestone are included in the covered services provided by Ohio. The services provided to patients are paid by the Alcohol Drug Addiction and Mental Health (ADAMH) Board, Alcohol and Drug Addiction Services (ADAS) Board or the Community Mental Health (CMH). The Board is then reimbursed by the federal government for the 60% and the other 40% comes from both local and state sources.

Because of the significant financial distress experienced by the company, Thomas decided to seek help from Service Consulting Plus, LLC, a local consulting firm who works with nonprofit organizations. He had a meeting with Sheryl Marshall, owner of Service Consulting Plus, and was told that CVP Analysis would be very useful to the company. Sheryl asked Thomas to provide her with a budgetary income statement in contribution margin format since it presents revenues and expenses based on the relation of variable and fixed costs to the service activity.