Question Details

HSA 525
WEEK 8
394 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, Al"lD SOLUTIONS
4. Compute the price variance and the quantity variance in the middle of the worksheet.
5. Indicate whether the price and the quantity variances are favorable or unfavorable
for March.
Optional
Can you compute how the $3,228,900 actual overhead costs and the $3,250,000 budgeted
overhead costswere calculated?
#'Assignment Exercise 17-1: Variance Analysis
Greenview Hospital operated at 120% of normal capacity in two of its departments during
the year. It operated 120% times 20,000 normal capacity direct labor nursing hours in routine
services and it operated 120% times 20,000 normal capacity equipment hours in the
laboratory. The lab allocates overhead by measuring minutes and hours the equipment is
used; thus equipment hours.
Assumptions:
For Routine Services Nursing:
• 20,000 hours X 120% = 24,000 direct labor nursing hours.
• Budgeted Overhead at 24,000 hours = $42,000 fixed plus $6,000 variable = $48,000
total.
• Actual Overhead at 24,000 hours = $42,000 fixed plus $7,000 variable = $49,000 total.
• Applied Overhead for 24,000 hours at $2.35 = $56,400.
For Laboratory:
• 20,000 hours X 120% = 24,000 equipment hours.
• Budgeted Overhead at 24,000 hours = $59,600 fixed plus $11,400 variable = $71,000
total.
• Actual Overhead at 24,000 hours = $59,600 fixed plus $11,600 variable = $71,200
total.
• Applied Overhead for 24,000 hours at $3.455 = $82,920.
Required
1. Set up a worksheet for applied overhead costs and volume variance with a column for
Routine Services Nursing and a second column for Laboratory.
2. Set up a worksheet for actual overhead costs and budget variance with a column for
Routine Services Nursing and a second column for Laboratory.
3. Set up a worksheet for volume variance and budget variance totaling net variance
with a column for Routine Services Nursing and a second column for Laboratory.
4. Insert input data from Assumptions.
5. Complete computations for all three worksheets.
Example 17B
Reviewthe "SensitivityAnalysisOverview" section and Figure 17-5in Chapter 17.
Chapter 17 395
!f..Assignment Exercise 17-2: Three-Level Revenue Forecast
Three eye-ear-nose-and-throat physicians decide to hire an experienced audiologist in
order to add a new service line to their practice. * They ask the practice manager to prepare
a three-level volume forecast as a first step in their decision-making.
Assumptions: for the base level (most likely) revenue forecast, assume $200 per procedure
times four procedures per day times five days equals 20 procedures per week times 50
weeks per year equals 1,000 potential procedures per year.
For the best case revenue forecast, assume an increase in volume of one procedure per
day average, for an annual increase of 250 procedures (5 days per week times 50 weeks
equals 250). (The best case is if the practice gains a particular managed care contract.)
For the worst case revenue forecast, assume a decrease in volume of two procedures per
day average, for an annual decrease of 500 procedures. (The worst case is if the practice
loses a major payer.)
*Audiologists were designated as "eligible for physician and other prescriber incentives" as
discussed in Chapter 20. Thus the new service line was a logical move.
Required
Using the above assumptions, prepare a three-level forecast similar to the example in Figure
17-5 and document your calculations.
Practice Exercise 17-11
Closely study the chapter text concerning target operating income.
The necessary inputs for target operating income include the following:
• Desired (target) operating income amount = $20,000
• Unit price for sales = $500
• Variable cost per unit = $300
• Total fixed cost = $10,000
Compute the required revenue to achieve the target operating income and compute a
contribution income statement to prove the totals.
-psSignment Exercise 17-3: Target Operating Income
Acme Medical Supply Company desires a target operating income amount of $100,000,
with assumption inputs as follows:
• Desired (target) operating income amount = $100,000
• Unit price for sales = $80
• Variable cost per unit = $60
• Total fixed cost = $60,000
Compute the required revenue to achieve the target operating income and compute a
contribution income statement to prove the totals.
396 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, Al"lDSOLUTIONS
CHAPTER 18
~ignment Exercise 18-1: Estimate of Loss
You are the practice manager for a four-physician office. You arrive on Monday morning to
find the entire office suite flooded from overhead sprinklers that malfunctioned over the
weekend. Water stands ankle-deep everywhere. The computers are fried and the contents
of all the filing cabinets are soaked. Your own office, where most of the records were stored,
has the worst damage.
The practice carries valuable papers insurance coverage for an amount up to $250,000.
It is your responsibility to prepare an estimate of the financial loss so that a claim can be
filed with the insurance company. How would you go about it? What would your summary
of the losses look like?
~gnment Exercise 18-2: Estimate of Replacement Cost
The landlord carries contents insurance that should cover the damage to the furnishings,
equipment, and to the computers, and the insurance company adjuster will come tomorrow
to assess the furnishings and equipment damage. However, your boss is sure that the insurance
settlement will not cover replacement costs. Consequently, you have been
instructed to prepare an estimate of what has been lost and/ or damaged plus an estimate of
what the replacement cost might be. How would you go about it? What would your summary
of these losses look like?
~signment Exercise 18-3: Benchmarking
Review the chapter text about benchmarking.
Required
1. Select either the MHS case study in Chapter 25 or one of the organizations represented
by a mini-case study in Chapters 27, 28, or 29.
2. Prepare a list of measures that could be benchmarked for this organization. Comment
on why these items are important for benchmarking purposes.
3. Find another example of benchmarking for a healthcare organization. The example
can be an organization report or it can be taken from a published source such as a
journal article.
Assignment Exercise 18-4: Pareto Rule
Review the chapter text about the Pareto rule and examine Figure 18-4. Note that the text
says Pareto diagrams are often drawn to reflect before and after results.
Assume that Figure 18-4 is the before diagram for the Billing department. Further assume
that the after results are as follows: