Higher Variable Costs Research Articles

Financial Implications of a Hospital’s Specialization in Rare Physiologically Complex Surgical Procedures

The authors previously identified a hospital that has a unique role in its region for surgical care. In children aged 0-2 yr, the hospital performed 64% of all physiologically complex procedures statewide (>or= 8 American Society of Anesthesiologists Relative Value Guide basic units). For all age groups combined, 48% of the physiologically complex procedures performed at that hospital were rare, defined as < 1/workday statewide. The authors tested the hypothesis that financially important differences can result from performing relatively large numbers of such specialized procedures. Methods were developed to compare contribution margin (revenue from facility and professional fees minus variable costs) per operating room hour (CM/OR hour) between patient groups and different types of surgical procedures. CM/OR hour was significantly larger by a financially important amount (> 250 dollars/OR hour) for pediatric versus geriatric patients (P <or= 0.002), primarily because of higher professional reimbursements, with no difference in hospital reimbursements. Unexpectedly, CM/OR hour was also significantly greater by at least 250 dollars when a rare procedure was involved (P < 0.001 for all ages combined), primarily because of greater hospital reimbursements. For cases involving implant charges of 10,000 dollars or greater, overall CM/OR hour was negative because increased revenues did not compensate for the high variable costs. Other hospitals can use these methods to perform a similar analysis of the financial impact of those patient populations or surgical procedures that are unique to their own roles in their regional healthcare systems, and to identify the sources of financial losses and gains experienced by the hospital.

Distribution Systems and Operating Leverage

This paper presents a model in which firms compete in a Cournot-Nash game. Firms can choose an exclusive agency (EA) or an independent agency (IA) distribution system. Firms can enter and exit the market and switch distribution systems with no cost. The only difference between an EA system and an IA system is the operating leverage or cost structure. An EA firm incurs low (per unit) variable cost but high fixed cost. An IA firm incurs high variable cost but low fixed cost. Under the different operating leverages, we investigate the equilibrium outcome in which no entry, no exit, and no switching occur. We find that coexistence is possible when IA firms are less efficient than EA firms. IA firms can dominate in the market even if IA firms are inefficient. An EA firm produces more than an IA firm. IA firms tend to dominate more in high risk lines than in low risk lines. We provide numerical examples showing how an inefficient system can survive and even dominate in the market.

Distribution Systems and Operating Leverage

This paper presents a model in which firms compete in a Cournot-Nash game. Firms can choose an exclusive agency (EA) or an independent agency (IA) distribution system. Firms can enter and exit the market and switch distribution systems with no cost. The only difference between an EA system and an IA system is the operating leverage or cost structure. An EA firm incurs low (per unit) variable cost but high fixed cost. An IA firm incurs high variable cost but low fixed cost. Under the different operating leverages, we investigate the equilibrium outcome in which no entry, no exit, and no switching occur. We find that coexistence is possible when IA firms are less efficient than EA firms. IA firms can dominate in the market even if IA firms are inefficient. An EA firm produces more than an IA firm. IA firms tend to dominate more in high risk lines than in low risk lines. We provide numerical examples showing how an inefficient system can survive and even dominate in the market.

Evaluation of the water cost effect on water resource management:: Application to typical crops in a semiarid region

The greatest water consumption takes place during irrigation of arid and semiarid areas, therefore, water resource management is fundamental for sustainability. For correct management, several tools and decision-making systems are necessary while paying close attention to aspects such as profitability, water cost, etc. Water resources are scarce and some of them are of low quality. This extremely delicate situation occurs in some regions of the world and it explains increasing water cost. In Europe, the policies relating to water use (2000/60/EC) pay particular attention to the need of its protection and conservation. To ensure this, a large number of measures, including the establishment of prices which really correspond to their usage costs, have been set forth. Water subsidies are relatively important in all European countries. In this study, a specific methodology is applied to a Spanish semi-arid region. It is useful and easy to apply, not only by farmers, but also by water managers and politicians in charge of policy. The methodology also helps in the decision-making process about water cost in agriculture. In this area (Hydrogeological System 08.29, Spain), the resources are mainly underground water with a high variable cost and without any direct subsidies. This model allows us to analyse the effect of different water costs and to find the optimum strategy giving the maximum gross margin in line with water cost and its main determining factors (irrigation system, climatic variability, etc.). The methodology is based on the effect of irrigation on crop yield with its production function, integrating the effect of application efficiency. In this way, a relationship between gross margin and gross irrigation depth is obtained. Working with permanent irrigation systems and four crops (barley, garlic, maize and onion), the main conclusion is that the optimum gross irrigation depths are always fewer than those necessary for maximum crop yield and when irrigation depths are fewer water cost increases. Irrigation depths, which maximise the economic efficiency in the use of water (€ m −3), are fewer than those which maximise the gross margin; therefore, this aspect must be considered in irrigation scheduling. The results also show important differences among crops, depending on their water requirements and their economic profitability.

Yield management: opportunities for private club managers

Yield management has been adopted by many hospitality organizations. An introduction to yield management concepts, resources and ideas for the design and implementation of price and capacity management tools is provided in the context of private club management. The use of contribution‐based yield statistics to monitor the performance of price and capacity decisions in high variable cost operations is discussed, along with reservations policies, perceptions of fairness and the use of coupons to obscure differential price policy.

The application of roll forming for automotive structural parts

In the automotive industry today, structural body parts are generally made of steel via stamping or hydroforming. The structural and complexity potential of such parts is very high but investments and variable costs are significant. A process offering an economic and flexible alternative is roll forming. In this paper, the continuous manufacturing operation is investigated and rated as per its applicability to automotive structures, its costs and its technical limitations. An appropriate cost estimation tool for roll formed parts is not available in the market. Most existing roll forming software tools concentrate on the process layout and do not consider the economics. In order to determine the costs of roll forming for a certain profile in a fast and accurate manner, a calculation system has been developed at the Ford Forschungszentrum Aachen (FFA). This paper begins with a discussion of relevant manufacturing technologies for body structure production that are rated as per their applicability for flexible manufacturing. The rapid calculation tool is then described along with a sample application. Finally, the paper is completed with an analysis and discussion of the cost estimation results.

FEASIBILITY OF HOOP STRUCTURES FOR MARKET SWINE IN IOWA: PIG PERFORMANCE, PIG ENVIRONMENT, AND BUDGET ANALYSIS

Hoop structures are large simple, tentlike shelters that can be used for pigs. The pigs are kept inside the hoopstructure and large bales, e.g. straw or cornstalks, are used for bedding. A typical hoop structure (10
30 m) holds about200 market pigs. Bedding is added every two to six weeks as needed until the pigs are marketed at which time clean out occurs.Three demonstrational trials were conducted in Iowa. The pigs were fed from 26 to 117 kg. Pig performance in hoops wasacceptable (ADG=.83 kg/d, FE=3.42 kg feed/kg gain) with 9% poorer feed efficiency in winter. Growth rate was equal toor slightly more than typical for pigs in conventional confinement. Pig mortality was less than 3%. Average bedding use was100 kg per pig in winter and 55 kg per pig in summer. The hoop manure can be composted readily. The bedding pack wasvariable with some areas actively composting on site in the hoop, generating temperatures up to 62  C. An economic analysisshowed similar total costs of production with the hoops having lower fixed costs and higher variable costs than in conventionalconfinement. The higher variable costs are due to bedding and extra feed and labor. Hoop structures offer a feasiblealternative production system for sustainable swine production in Iowa and surrounding areas.

Evaluating Carsharing Benefits

Carsharing is an automobile-rental service intended as a substitute for private-vehicle ownership. Carsharing emphasizes affordability and convenience. Vehicles are located near residences, rented by the hour, and require minimal effort to check in and check out. Carsharing services are common in some European countries and are increasingly common in North America. Carsharing gives consumers a practical alternative to owning a personal vehicle that is driven fewer than 10 000 km (6,000 mi)/year. Carsharing has lower fixed costs and higher variable costs than private-vehicle ownership. This price structure makes occasional use of a vehicle affordable, even to low-income households. It also gives drivers an incentive to minimize their vehicle use and to rely on other travel options as much as possible. Carsharing typically reduces average vehicle use by 40 to 60 percent among drivers who rely on it, making it an important transportation demand-management strategy. Despite these benefits, the use of carsharing is growing slowly and will need to overcome several barriers to achieve its full potential.

Healthcare systems and end-stage renal disease (ESRD) therapies--an international review: costs and reimbursement/funding of ESRD therapies

In healthcare economics, the cost factor plays a leading role, particularly for chronic diseases such as end-stage renal disease because of the growing number of patients. An international comparison was made of the costs and reimbursement/funding of a selection of key dialysis modalities--centre haemodialysis (CHD), limited care haemodialysis (LCHD), home haemodialysis (home HD), continuous ambulatory peritoneal dialysis (CAPD) and automated peritoneal dialysis (APD)--in various industrial countries. The focus was on treatment costs plus erythropoietin medication and reimbursement of transportation costs. Reimbursement/funding of dialysis is different from country to country, with some healthcare system-specific commonalities: in 'public' systems, the funding is based more on global budgets, whereas in mixed public and private countries it is based mainly on reimbursement rates per treatment. Only in the 'private system' of the US is there one DRG (diagnostic-related group)-type rate for dialysis. By comparing the costs (in public countries) or reimbursements (in mixed countries) of treatment modalities within each country, we could see similar curves: the costs were the highest for public CHD, followed by private CHD. They were lower on LCHD and the lowest for home HD and CAPD, which were at nearly the same level. The cost level for APD was almost the same as that of LCHD. The reimbursements followed the cost pattern. Some countries introduced increases for CAPD and APD with the intention of increasing the share of home care. The costs and reimbursement patterns in the majority of countries (except the US and Japan) were very similar and therefore did not explain the different distribution of modalities in these countries. One explanation could be, however, the difference in microeconomics, CHD being a treatment with high fixed costs (personnel and structure) and CAPD being a treatment with low fixed costs, but high variable costs (supplies) and a low need for investments. The choice of treatment modality seems to be influenced strongly by the provider's perspective, being either public with limited HD capacity or private having invested in HD capacity. For public providers (and healthcare payers), CAPD is less expensive than CHD and offers a number of potential savings. In many countries, two CAPD patients could be treated for the same costs as one CHD patient. The microeconomics of private centres, however, are meant to use the investments maximally for CHD. Only if capacity limits are reached, is PD, with mainly supply costs, interesting. The future with constantly increasing numbers of patients and growing cost constraints will force all providers to make the best use of their resources by also offering home therapies such as PD to patients. The latter are cost efficient and offer comparable survival and quality of life.

A post-harvest economic model to evaluate grain chilling as an IPM technology

A spreadsheet model was developed to evaluate the economic costs of new post-harvest integrated pest management technologies, such as grain chilling, against traditional pest control methods, such as phosphine fumigation. The model considers 34 factors including electrical power consumption, capital investment cost, chemical costs, and less quantifiable factors such as worker safety, environmental issues, and changes in end-product value. When applied to the storage of popcorn, a high value speciality crop, and wheat, the annual operating costs of chilled aeration compared to phosphine fumigation with ambient aeration were up to 128 and 300% lower, respectively. The effect of high capital investment with low variable costs, as with chilled aeration, was compared to the low capital investment and high variable costs of phosphine fumigation using a multi-year Net Present Cost (NPC) model. For the case studies evaluated, the NPC of chilled aeration ranged from −122 to 197% of that for in-house fumigation with ambient aeration. Chilling of popcorn became economically feasible if a premium of less than one cent per retail bag could be obtained for popcorn labeled post-harvest pesticide-free. Chiller unit prices of US$ 80,000–90,000 were found to be a reasonable capital expenditure for this alternative integrated pest management technology.

The choice of technology and capital structure under rate regulation

This paper examines a regulated firm's choice of technology. It presents a model in which regulatory opportunism induces the firm to adopt a technology that gives rise to cost functions with higher variable costs and lower fixed costs than is socially optimal. This distortion arises because the regulated price is positively correlated with marginal costs. Consequently, a technology with low marginal costs implies a low regulated price and hence is unattractive to the firm. Debt financing is shown to alleviate this distortion because it induces regulators to increase the regulated price to prevent the firm from financial distress, thereby reducing the cost to the firm of adopting technologies with low marginal costs. When regulators restrict the firm's ability to issue debt, the firm may have an incentive to goldplate (i.e. waste resources). This incentive disappears when the firm can use its most preferred mode of financing.

Productivity of Hereford, highgrade Simmental and Belmont Red beef herds in central Queensland 6. Whole herd income and gross margins

Hereford, highgrade Simmental, and Belmont Red breeding and fattening herds were modelled using comparative productive traits established in a research program. These traits included survival and reproductive rates and liveweights of breeders grazing predominately improved pasture, and growth rates from weaning to sale under either pasture or pasture-plus-crop nutritional regimes. It was assumed that steers were targeted to the grass-fed Japanese market, which required carcass weights of 280-380 kg. Net income was estimated by developing a hypothetical property capable of supporting 1000 adult equivalents and using best-bet estimates of the variable and fixed costs of production for each herd. Belmont Red model herds produced higher net income ($A58 800) than Hereford ($19 000) or highgrade Simmental ($8 000) herds under the pastureonly regime. When surplus heifers and steers had access to summer and winter crops as well as pasture, net income was Belmont Red $60 600, Hereford $34 400, and highgrade Simmental$20 400. The lower earning capacity of the Hereford than the Belmont Red was due to lower herd output; higher variable costs, mainly due to higher costs for bulls and for tick and dystocia control; and lower prices, due to a smaller proportion of cattle meeting preferred fat scores. The difference between the Hereford and highgrade Simmental herds was mainly due to price reductions for the highgrade Simmental slaughter cattle because of failure to meet preferred fat scores. Their large mature size and, hence, fewer numbers to make up 1000 adult equivalents also contributed.

Contributing Editor's Feature

To date, “Just-In-Time” (JIT) prescriptions have been limited primarily to larger organizations and the functional area of production. Rudy Winston and Lance Heiko begin a discussion of JIT that badly needs starting … and continuing. Their focus in this article is to hypothesize, based on their real world experiences, how JIT can be used by new and smaller businesses. Those thinking of using JIT techniques will find their analysis and discussion thought provoking and instructive. But we need to continue and extend the discussion. I'd like to start by suggesting we need to apply the basic notions of JIT to non-production issues within newer enterprises. For instance, the notion of proper timing is at the core of both JIT and new venture creation. When, precisely, do you need to bring aboard key members of an entrepreneurial team? Drucker and others assert, before you truly need them. JIT suggests otherwise. When do you need the next round of financing? … the new office? … the additional employees? Again, JIT provides very specific advice about these questions … answers that are consistent with proponents of bootstrapping and those who warn to “always run your new venture on a high variable cost basis.” But when is this advice really right? And when is it dead wrong? These and related questions remain unanswered. But perhaps, just perhaps, Winston and Heiko have started a line of inquiry that may lead one day to some answers … just in time.

World phosphate supply

The Bureau of Mines investigated the resources, costs, capacities, market relationships, and short‐ and long‐run supply of phosphate rock and phosphoric acid. The 206 mines and deposits evaluated in 30 market economy countries (MECs) contain an estimated 35.1 billion tonnes of recoverable phosphate rock (demonstrated resource level). US resources are sufficient to satisfy both the domestic market and an export market for phosphate products well beyond 2000. Resource depletion at current producers, however, means new property development (with higher costs) will be required if US production levels are to be maintained. Existing worldwide capacity can satisfy expected demand through the early 1990s. Expansion at existing mines or low demand growth could mean no new property development is required before the late 1990s. Worldwide, almost $8 billion could be required for the development of new phosphate rock properties between now and 2000, given 3% annual growth in demand. Though profit may not be the principal motivation for development of government‐owned operations, most properties that could develop in the 1990s would require price increases of 20–50% to break even. To earn a 15% rate of return on investment, prices must rise to nearly double the $23–271 tonne US price level of 1988. Current US phosphate rock and phosphoric acid producers appear to be competitive (on a variable cost basis) with many other suppliers in major markets. New US properties will have higher variable costs than current producers; however, they are competitive with most projected new foreign development. The US phosphoric acid industry will most likely face increased competition as more of the foreign phosphate rock producers develop the capacity to process rock into phosphoric acid and other fertilizer products.

Why is life-cycle costing important when retrofitting buildings

Using life-cycle costing (LCC) gives us a means to find the best retrofit strategy for an apartment block. This method also shows us how important it is to consider the whole existing building as an energy system. If the best heating system is put into the house almost every shield retrofit is unprofitable. Having heating systems, with high variable costs combined with exhaust ventilation air pumps, sometimes makes it unprofitable to caulk the windows and doors. This article also shows the importance of using the accurate prices for the energy. Short-range marginal costs (SMRC) gives different retrofit strategies than normal tariffs used today. This also means that the retrofits do not correspond to the optimal use of the total national energy system and already scarce resources are used unnecessarily.

Development of Dispersive System of Energy Production by Utilizing Unused Resources

The dispersive system of energy production comes before the footlights whenever a crisis of energy is concerned, but in fact, the concentrated system of energy production, which depends mainly on overseas resources, tends to expand its share. Most of the energy which is consumed for agricultural production in Japan depends on imported oil, so Japan is lacking in independence in terms of energy. We, therefore, have to aim at self-supply of energy for Japanese agriculture by actively utilizing unused resources which exists stably in Japan.When we consider about the problem of energy, we should not think it only in respect of physical energy efficiency, it is more desirable for us to think it also in respect of economical viewpoint. In addition, we have been thinking the problems of the dispersive system fragmentalily in isolation before, that is the reason why such problems exist still today. Therefore, we have to think of the energy problems systematically and not to repeat the same failure again.In order to realize the proposal mentioned above, we have to think of the introduction of dispersive system as a supplement system to the concentrated system, as J.W.Milon shows in his thesis.As far as the concentrated system is concerned, enormous energy is produced constantly, and when we study the process of energy production in the portion of operating time, it is devided into three units ; base unit, intermediate unit, and peak unit. Base unit such as nuclear or coal generators has high capital costs and low variable costs. On the other hand, peak unit is intensive and has low capital costs. Then it can be said that the marginal production cost is highest at the peak unit and lowest at the base unit.As mentioned above, if we take notice of that the marginal cost differs in the amount of production, the dispersive system would be able to supplement the concentrated system at the peak unit when a high marginal cost is inevitable. As a result of this, the production cost of the concentrated system will get lower as a whole, so we have to intend to magnify the dispersive system.The cost decision theory of marginal cost, which began to be popular in the 1930's has been authorized recently, and was formed in a public law in the U.S.A. in 1978. So in Japan, we have to combine many of the dispersive systems based on the theory - the marginal cost becomes energy charges - and then, we should aim at reducing the marginal cost and thinking the optimum distribution of resources over a long time. The most adequate method for it is to determine the most suitable combination of the dispersive systems under limited conditions, and to make good use of the marginal cost which is determined in the fittest combination. Then we have to look for the most suitable way leading to the best, using multi-stage linear programing.

Long‐Term Versus Short‐Term Land Retirement

SINCE funds to control farm production and maintain prices are not unlimited, agricultural programs should be selected from among those that use Government funds most efficiently. The purpose of this paper is to evaluate the relative efficiency of annual versus long-term land retirement programs in removing the most production per dollar of Treasury cost. To determine the theoretical efficiency of agricultural programs, we assume that a farmer is willing to divert his land or allotment whenever the Goverment payment equals or exceeds the difference between gross receipts and variable costs. Thus, the ratio of variable costs to gross returns is correlated with the amount of production removed per dollar of payment. Programs that are associated with a high variable cost will give a higher efficiency. Efficiency increases as the time period of the program is extended and more the the farmers' costs become variable. Hence, the greater theoretical efficiency of long-term retirement over a yearly diversion program. Often a discrepancy is observed between the theoretically computed payment that would induce program participation and the amount that farmers state would actually be required. In some cases, farmers may require more than the theoretically computed payment to divert their land from production. This payment premium may be greatest for long-term programs. Farmers tend to shy away from long-term contracts because of their inflexibility over time. Short-term diversion, which is favored by more farmers, has a lower variable cost situation and a smaller theoretical efficiency. The gap between the theoretical payment and the payment asked by farmers for participation was gauged by data from a survey of 198 Oklahoma dryland farmers eligible for the wheat and/or feed grain programs. The sample was distributed proportionately over four randomly selected countries-one country from each of the four major agricultural areas of western Oklahoma. Within each county, names of owner-operators and operators were randomly drawn from the ASCS county records. The cropland available was divided by the farmer into three quality categories. The variable cost of producing wheat and grain sorghum and