Question

Terri Settles is a registered dietitian.   She supervises five hospitals for Maramark Dining Services, the management company the hospitals have selected to operate their foodservice operations.   Het company produces a monthly and annual income statement for each hospital.
discuss five ways in which income statements can help Terri do her job better
what would a hospital do with profits or surpluses made in the food service area
what effect will profit or loss have on the ability of Terry's company to continue to manage the food service operations for these hospitals

Answer 1

Part A

The different ways in which income statements can help Terri do her job better are:-

1. The net result will provide details of whether the food service operation is operating effectively or not.

2. Identifying the measures/scope of improvement, if any

3. Planning future actions (whether a loss generating operation be shut down, any additional investment needed for growth purposes etc.)

4. Identify areas where cost reduction can be done

5. Allocating more of her time to low profit/loss generating operations

The above mentioned points are not exhaustive, further points can be added to the list.

Part B

Any profit or surplus made by the hospital in the food service area can be utilized towards the primary activities of the hospital which would help in improving the quality of service provided to the customers i.e. better facilities, hiring more staff, increase in the existing capacity etc.

Part C

A profit generating operation would imply an effective working by Terry's company which can ensure a long term relation for the company with the hospitals.

Whereas loss generating units tend to shut down eventually and losses have to be suffered by the parties concerned.

Hence, Terry should ensure effective measures are in place for a smooth functioning of the food service operations.