This report focuses on the financial performance of the American Medical Security Group Inc. The company operates in the Medical Service and Health insurance sector, according to the Security Exchange Commission Classification. The report covers the aspects concerning the intercourse with the Health Care Reform agency, concentrates on the methods of the costs assembling and discourses over the possible consequences of the cost implementation of the various cost differentiating models.
The Methods to Assemble Costs
First and foremost, it is necessary to stress the fact that the internal structure of the company contains a vast variety of branches and subsidiary companies scattered across the United States of America. The firm operates in Texas, Massachusetts, Ohio, New York, Columbia D.C. and in the other states. Therefore, finding out the methods of costs assembly and calculation, this complex internal hierarchical structure of the firm must be permanently considered and accentuated.
In order to assembly the costs and other expenditures of the company, the most reasonable strategy is to assess the recently published statements of income of the company and balance sheets issued by the financial department of the company (Maher,2005).
The most effective costs management strategy involves a combination of different methods. Primarily, a permanent, deep empirical analysis of the company performance must be conducted. This strategy is carefully followed by the financial team of the American Medical Security Group, what is evident from the statement of income for 2011( the marginal profit is 14% of all accrued revenues of the company).
Long Term Cost Management
As far the long term cost management perspective is concerned, the company extensively refers to the experience of the firm, the experience of the competitors and anticipations of the financial specialists and financial research units (according to the 2011 balance sheet of the firm, the entire section of the firms’ expenditures is allotted to finance the teams of analysts ). The long term cost management involves the consideration of the global factors, such as projected political situation in the United States of America and the countries of the export of production and services and import of raw materials.
Short Term Cost Management
The short term perspective includes the consideration of the market dynamics and the activity of the competitors. Evidently, since 2011 the company has decided to minimize the costs of manufacture and to increase advertising costs respectively, with regard to the aggressive marketing approaches of the competitors.
Differential Costing Issues
If the firm decides to expand an existing service, the differentiating costs will be deducted according to the following formula: first, the expenses of such an expansion will be calculated; secondly, the revenues accrued by the company with the implemented expansion are estimated; the third step is contrasting the revenues before the implementation of changes and after the transformation. If the revenues accrued are bigger than the costs invested to the expansion of the existing services, the differentiating costs strategy may be defined as successful. Providing that the new service is launched, the same strategy is followed: the costs for the launch are estimated, the new profits are compared to the profits collected before the launch of the new service and the comparative chart serves as an indicator. If the ratio is positive, the policy is successful. To illustrate: one of the crucial points took place in 2004, when the firm decided to render services for the short-term care facilities. After the manufacturing costs and advertising expenses have been calculated, and compared with the financial performance of 2005 ( on the basis of the income statement for2004, 2005 and balance sheets for the respective years), it was reported that the 5 years projected profits would exceed the investments spent on 10-13%.
The same analysis can be applied to the closing of a new service project (there are no available precedents with this company yet) and to the decreasing