HBSP Product Number TCG 7
THE CRIMSON PRESS CURRICULUM CENTER
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THE CRIMSON GROUP, INC.
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Carlsbad Home Care
In December, Joseph Blanchard became the controller of Carlsbad Home Care (CHC). After 10
years in the accounting department of a consumer products firm, Mr. Blanchard had decided to
move into the nonprofit field where he felt his expertise would be needed. CHC, a small agency in
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Southern New Mexico, offered him that opportunity.
Before Mr. Blanchard accepted the position of controller, Ms. Louise Tucker, the director of the
agency, briefed him on the agency’s financial position. Like many home care agencies, CHC had
become affiliated with a large health maintenance organization (HMO). The HMO paid a fixed fee
of $110 to CHC for each home visit.
Ms. Tucker was concerned because CHC's per-visit costs exceeded that amount, She had hired
Mr. Blanchard with the hope that he could resolve this problem. CHC's average cost per visit calcu-
lation is contained in Exhibit 1.
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BACKGROUND
CHC’s goal was to provide home health visits to elderly and disabled residents of Carlsbad and
neighboring towns. Several years ago, in response to community need, it had expanded its services
to include physical therapy and social service visits. Because another organization in town, The
Canyon Home Service, provided home health aide care, CHC did not offer aide services.
CHC currently had a staff of 13. Two registered nurses, two physical therapists, two social
workers, and one psychologist were responsible for the home health visits. The administration con-
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sisted of a director, an assistant director, the newly appointed controller, and a support staff of three.
The skilled nursing care visits were handled by the two registered nurses. The two physical thera-
pists worked exclusively on patient visits. The social workers, in consultation with the psychologist
(who made no visits), provided all the social service visits.
The two registered nurses who handled all nursing visits could provide as many as seven visits
a day each. However, because the case visits varied significantly in time, effort, and location, the
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nurses averaged only 5.5 visits per day. The physical therapists averaged 3.3 visits per day, al-
though Ms. Tucker thought their capacity could be increased by at least 33 percent if they had the
demand. The social workers averaged 4.5 visits a day, but Ms. Tucker thought these could be in-
creased to about 5.5 a day. The CHC staff worked an average of 240 days a year.
DATA
In his first few weeks, Mr. Blanchard reviewed CHC’s financial statements, employee service
sheets, and other working papers to become familiar with the agency’s financial status and planning
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needs. He realized the agency had been operating without any cost goals. After a cursory review of
past records, he decided that his first priority was to ensure that revenue met costs.
Examining CHC’s Expense Record, shown in Exhibit 1, Mr. Blanchard determined that the
agency had two types of costs: those that changed according to the number of visits provided and
those that were unchanged, regardless of volume. He reasoned that at their breakeven point, CHC’s
revenue of $110 per visit would equal the total cost of the expenses generated by each visit plus the
fixed expenses.
Mr. Blanchard reviewed each item on the Expense Record to determine which type of cost it
was. He thought the medically related salaries and the medical and nursing supplies were items that
varied directly with the number of visits. When he discussed his analysis with Ms. Tucker, she
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suggested that staff automobile allowance varied with the number of visits because it referred to
mileage incurred by the medical staff in making home visits.
_____________________________________________________________________________________________
This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illus-
trate either effective or ineffective handling of an administrative situation.
Copyright © 2012 by The Crimson Group, Inc. To order copies or request permission to reproduce this document,
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This document is authorized for educator review use only by Pawan Taneja, HE OTHER until September 2018. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
"Terrific," thought Mr. Blanchard. "Now I can calculate a variable cost per visit and in no time
I’ll know the breakeven point. I can show them their costs and revenues, and where we’ll have to
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operate to keep this agency in business."
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Assignment
1. Identify the fixed and variable costs.
2. What is the breakeven point?
3. What assumptions were necessary in answering questions 1 and 2?
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CARLSBAD HOME CARE
Exhibit 1. Expense Record
Detail Total
1. Salaries................................................................................... $567,994
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Director, assistant director, controller............................... $165,140
Nurses (2)............................................................................105,920
Psychologist (1)................................................................... 56,000
Social workers (2)................................................................. 77,000
Physical therapists (2)........................................................... 90,334
Support staff (3)................................................................... 73,600
2. Transportation costs................................................................. 56,000
Automobile operation and insurance.................................... 16,000
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Automobile allowance for staff.............................................40,000
3. Purchased services................................................................... 4,700
4. Medical and nursing supplies................................................... 14,800
5. Space occupancy costs............................................................. 34,660
6. Office costs (telephone, postage, stationery)............................. 25,312
7. Other general costs (depreciation, insurance, legal)................... 35,720
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Total cost................................................................ $739,186
Number of visits...................................................................... 6,384
Average cost per visit.................................................................. $115.79
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Carlsbad Home Care • June 2012 2 of 2
This document is authorized for educator review use only by Pawan Taneja, HE OTHER until September 2018. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
