Question Details

HSA 525
WEEK 7
390 EXAMPLEASNDEXERCISESU, PPLEMENTMALATERIALASN, DSOLUTIONS
• The budget anticipated 30,000 inpatient days this year at an average of $650 revenue
per day.
• Inpatient expenses were budgeted at $600 per patient day.
• The budget anticipated 10,000 outpatient visitsthis year at an average of$400 revenue
per visit.
• Outpatient expenses were budgeted at $380 per visit.
As to the actual results:
• Assume that only 27,000, or 90%, of the inpatient days are going to actually be
achieved for the year.
• The average revenue of$650 per day willbe achieved for these 270,000 inpatient days.
• The outpatient visitswill actually amount to 110%, or 11,000 for the year.
• The average revenue of $400 per visitwill be achieved for these 11,000 visits.
• Further assume that, due to the heroic efforts of the Chief Financial Officer, the actual
inpatient expenses willamount to $11,600,000 and the actual outpatient expenses
willamount to $4,000,000.
Required
1. Set up three worksheets that follow the format of those in Example 15A.However, in
each of your worksheets make two lines for revenue; label one as Revenue-Inpatient
and the other Revenue-Outpatient. Add a Revenue Subtotal line. Likewise, make two
lines for expense; label one as Expense-Inpatient and the other Expense-Outpatient.
Add an Expense Subtotal line.
2. Using the new assumptions, complete the first worksheet for "AsBudgeted."
3. Using the new assumptions, complete the second worksheet for "Actual."
4. Using the new assumptions, complete the third worksheet for "Static Budget Variance."
ifosignment Exercise 15-1: Budgeting
Select an organization; either Metropolis Health Systemfrom the Chapter 25 Case Study or
one of the organizations presented in the Mini-Case Studies in Chapters 26-28.
Required
l. Using the organization selected, create a budget for the next fiscal year. Set out the
details of all assumptions you needed in order to build this budget.
2. Use the "Checklist for Building a Budget" (Exhibit 15-2) and critique your own
budget.
~signment Exercise 15-2: Budgeting
Find an existing budget from a published source. Detail should be extensive enough to
present a challenge.
Chapter 15 391
Required
1. Using the existing budget, create a new budget for the next fiscalyear. Set out the details
of all the assumptions you needed in order to build this budget.
2. Use the "Checklist for Building a Budget" (Exhibit 15-2) and critique your own effort.
3. Use the "Checklist for Reviewing a Budget" (Exhibit 15-3) and critique the existing
budget.
VAssignment Exercise 15-3: Transactions outside the Operating Budget
ReviewFigure 15-2and the accompanying text.
Metropolis Health System has received a wellness grant from the charitable arm of an
area electronics company. The grant will run for twenty-four months, beginning at the first
of the next fiscal year. Two therapists and two registered nurses will each be spending half
of their time working on the wellness grant. All four individuals are full-time employees of
MHS. The electronics company has only recently begun to operate the charitable organization
that awarded the grant. While they have gained all the legal approvals necessary, they
have not yet provided the manuals and instructions for grant transactions that MHSusually
receives when grants are awarded. Consequently, guidance about separate accounting is
not yet forthcoming from the grantor.
Required
How would you handle this issue on the MHS operating budget for next year?
0ssignment Exercise 15-4: Identified versus Allocated Costs in Budgeting
ReviewFigure 15-3and the accompanying text.
Metropolis Health System is preparing for a significant upgrade in both hardware and
software for its information systems.As part of the project, the Chief of Information Operations
(CIO) has indicated that the Information Systems (IS) department can change the
format of the MHS operating budgets and related reports before the operating budget is
constructed for the coming fiscal year.The Chief Financial Officer (CFO) has long wanted
to modify what costs are identified and what costs are allocated (along with the method of
allocation). This is a golden opportunity to do so. To gain ammunition for the change, the
CFO is preparing to conduct a survey.The surveywill obtain a variety of suggestions for potential
changes in allocation methods for the new operating budget report formats. You
have been selected as one of the employees who willbe surveyed.
Required
Youmay choose your role for this assignment, as follows:
Refer to the "MHS Executive-Level Organization Chart" (Figure 25-2 in the MHS Case
Study). (1) Either (a) choose any type of patient service that would be under the direction
392 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, Al'\lDSOLUTIONS
of the Senior Vice President of Service Delivery Operations or (b) choose any other function
shown on the organization chart. (Yourfunction could be a whole department or a division
or unit of that department. For example, you might choose Community Outreach or
Human Resources Operations or the Emergency department, etc.) (2) Make up your own
organization chart for other employee levelswithin the function you have chosen. (3) Now
make up another chart that indicates the operating budget costs you think would be mostly
identifiable for the department or unit or division you have chosen and what other operating
budget costs you think would be mostly allocated to it. (Youmay use Figure 15-3as a
rough guide, but do not let it limit your imagination. Model the detail on your "identifiable
versus allocated costs" chart after a real department if you so choose.) Use MHS hospital
statistics shown in Exhibit 25-8 of the MHS Case Study as a basis for allocation if these statisticsare
helpful. If they are not, make a note of what other statisticsyou would like to have.
Note: As an alternative approach, you may choose a function from the "Nursing Practice
and Administration Organization Chart" as shown in Figure 25-1of the MHS Case Study instead
of choosing from the Executive-Level Organization Chart. ~~_~~~~ ---------- (~J
CHAPTER 16
Example 16A: Description of Capital Expenditure Proposals Scoring System
Worthwhile Hospital has a total capital expenditure budget for next year of fivemillion dollars.
Of this amount, three million is already committed as spending for capital assets that
have already been acquired and are in place. The remaining two million dollars is available
for new assets and for new projects or programs.
Worthwhile Hospital typicallydivides the available capital expenditure funds into monies
available for inpatient purposes and monies available for outpatient purposes. This year the
split is proposed to be 50-50.
The hospital's CFO is also proposing that a scoring system be used to evaluate this year's
proposals. She has set up a scoring system that allows a maximum of five points. Thus the
low is a score of one point and the high is a score of five points.
In addition to the points earned by a funding proposal, the CFO will allow one "bonus
point" for upgrading existing equipment and one "bonus point" for funding expansion of
existing programs.
Practice Exercise 16-1: Capital Expenditure Proposals
Jody Smith, the director who supervises the Intensive Care Units, wants to secure as much
of the one million dollars available for inpatient purposes as is possible for the ICU. At the
same time TedJones, the director who supervises the Surgery Unit, also wants to secure as
much of the one million dollars available for inpatient purposes as is possible for his
Surgery Unit.
Given the CFO's new scoring system,how shouldJody go about choosing exactly what to
request?
Chapter 17 393
~gnment Exercise 16-1: Capital Expenditure Proposals
TedJones, the Surgery Unit Director, is about to choose his strategy for creating a capital
expenditure funding proposal for the coming year. Ted's unit needs more room. The Surgery
Unit is running at over 90% capacity. In addition, a prominent cardiology surgeon on
staff at the hospital wants to create a new cardiac surgery program that would require extensive
funding for more space and for new state-of-the-art equipment. The surgeon has
been campaigning with the hospital board members.
Required
What should Ted decide to ask for? How should he go about crafting a strategy tojustify his
request, given the hospital's new scoring system?
CHAPTER 17
Example 17A: Variance Analysis
Our variance analysis example and practice exercise use the flexible budget approach. A
flexible budget is one that is created using budgeted revenue and/or budgeted cost
amounts. Aflexible budget is adjusted, or flexed, to the actual level of output achieved (or
perhaps expected to be achieved) during the budget period. A flexible budget thus looks
toward a range of activityor volume (versus only one level in the static budget).
Examples of how the variance analysis works are contained in Figure 17-1 (the elements),
in Figure 17-2 (the composition), and in Figures 17-3and 17-4 (the calculation).
Study these examples before undertaking the Practice Exercise.
Practice Exercise 17-1: Variance Analysis
Exhibit 17-2presents a summary variance report for the nursing activitycenter of St.Joseph
Hospital for the month of September. For our practice exercise wewillduplicate this report
for the month of March.
Assumptions are as follows:
• Actual ActivityLevel is 687,000.
• Budgeted ActivityLevel is 650,000.
• Actual Cost per RVUis $4.70.
• Budgeted Cost per RVUis $5.00.
• Actual Overhead Costs are $3,228,900.
• Budgeted Overhead Costs are $3,250,000.
Required
1. Set up a worksheet for the month of March like that shown in Exhibit 17-2for the
month of September.
2. Insert the March input data (per assumptions given above) on the worksheet.
3. Complete the "Actual Costs," "Flexible Budget," and "Budgeted Costs"sections at the
top of the worksheet.