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27 Cards in this Set

  • Front
  • Back
Are hosptial pharmacy departments a cost-center or a profit-center?
cost-center (don't sell goods and services, contribute to profitability by providing goods and services that improve quality of care, get patients out of hospital sooner, and keep costs down)
Are community pharmacies cost-centers or a profit-center?
What factors impact the net profit of community pharmacies?
increasing sales, decreasing costs and expenses
Decreasing what type of costs may decrease sales?
What is the definition of a cost?
a sacrifice of resources (represented by outlays of cash, promises to pay cash in future, or expiration of the value of an asset)
What is the definition of an expense?
specific type of cost which is charged against (deducted from) revenue in an accounting period
Are expenses or costs always included on the income statement?
expenses are always included
All expenses are costs, but not all costs are expenses
What is the definition of an opportunity cost?
the return that could be realized from the best foregone alternative use of a resource (expressed as difference in costs between 2 alternatives (both out of pocket expenses and forgone income)
What is the definition of direct costs?
costs which are directly caused by or result from performing a particular activity
What is the definition of indirect costs?
costs which are related to, but not directly caused by or result from performing a particular activity
Does this describe direct or indirect costs:
"costs which WOULD NOT occur if the activity were not performed"
direct costs
What is the definition of fixed costs?
costs which stay the same regardless of changes in sales volume
What is the definition of variable costs?
costs which change in proportion to changes in sales volume (when sales volume is 0, these costs will also be 0)
What is the definition of semi-variable costs?
costs which include both a fixed and variable component (even if sales were zero, some of these costs would still be present)
Can a cost be EITHER a direct or indirect cost?
remember that direct/indirect and fixed/variable are separate concepts
therefore, a cost ca be a direct cost and a fixed cost, a direct cost and a variable cost, etc etc.
What is the definition of a sunk cost?
an expenditure made in the past that can not be changed
Examples of salary expenses on the pro forma income statement for calculating COD
wages, fringe benefits, payroll taxes paid by the pharmacy
Examples of facility related indirect costs (indirect costs related to the physical facilities where the activity will take place
-fixed rent
-repairs and maintenance on buildings and fixtures
-depreciation on fixtures and buildings
-store liability insurance
Examples of indirect variable costs (non-facility)
-rent as a % of sales
-promotional expenses (advertising)
-miscellaneous expenses
Examples of direct costs
-pharmacy computer
-RPh malpractice insurance
-Rx labels and containers
(COGS IS NOT included)
Allocation rules:
Direct Costs
100% allocated to cost of performing the activity
Salary expense
costs corresponding to the % of time spend performing the activity are allocated
Facility Related Costs (FRC)
costs allocated based on the RATIO OF FLOOR SPACE dedicated to the activity to the floor space of the entire pharmacy
Indirect Variable Costs (IVC)
costs allocated based on the RATIO OF SALES generated by the activity to total sales
What are the management implications of COD? (2)
1)pharmacies must generate, on avg, at least the COGS + COD on every prescription to generate a net profit from dispensing
2)explains why pharmacies often set a minimum prescription charge