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Using the organization selected, create a budget for the next fiscal year

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Assignment Exercises 15-1, 15-2, 15-3, and 15-4 on pages 494 through 495

Assignment Exercise 15–1: Budgeting Select an organization: either from the Case Studies in Chapters 27–28 or from one of the Mini-Case Studies in Chapters 29–31. Required 1. 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

 

Assignment Exercise 15–2: Budgeting Find an existing budget from a published source. Detail should be extensive enough to present a challenge. Required 1. Using the existing budget, create a new budget for the next fiscal year. 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.

 

Assignment Exercise 15–3: Transactions Outside the Operating Budget Review Figure 15–2 and the accompanying text. Metropolis Health System (MHS) has received a wellness grant from the charitable arm of an area electronics company. The grant will run for 24 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 MHS usually 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?
Assignment Exercise 15–4: Identified Versus Allocated Costs in Budgeting Review Figure 15–3 and 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 survey will 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 will be surveyed. Required You may choose your role for this assignment, as follows: Refer to the “MHS Executive-Level Organization Chart” (Figure 28–2 in the MHS Case Study). (1) Either (a) choose any type of patient service that would be under the direction of the Senior Vice President of Service Delivery Operations or (b) choose any other function shown on the organization chart. (Your function 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 levels within 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. (You may use Figure 15–3 as 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 28–8 of the MHS Case Study as a basis for allocation if these statistics are helpful. If they are not, make a note of what other statistics you 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 28–1 of the MHS Case Study instead of choosing from the Executive-Level Organization Chart

 

  • Assignment Exercises 16-1 on page 497

Assignment Exercise 16–1: Capital Expenditure Proposals Ted Jones, 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 to justify his request, given the hospital’s new scoring system?

 

  • Assignment Exercises 17-1, 17-2, and 17-3 on pages 498 through 500

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 × 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 × 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 the Assumptions. 5. Complete computations for all three worksheets.

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 4 procedures per day times 5 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 2 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 elsewhere. 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.

Assignment 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.

 

  • Assignment Exercises 18-1, 18-2, and 18-3 on pages 500 through 501
  • Assignment 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?
    Assignment 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?
    Assignment Exercise 18–3: Benchmarking Review the chapter text about benchmarking. Required 1. Select an organization: either from the Case Studies in Chapters 27–28 or from one of the Mini-Case Studies in Chapters 29–31. 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 Exercises 20-1 on pages 503 through 504
  • Assignment Exercise 20–1: Financial Statement Capital Structures Required Find three different financial statements that have varying capital structures. Write a paragraph about each that explains the debt-equity relationship and that computes the percentage of debt and the percentage of equity represented. Also note whether the percentage of annual interest on debt is revealed in the notes to the financial statements. If so, do you believe the interest rate is fair and equitable? Why?
  • Assignment Exercises 21-1, 21-2, and 21-3 on pages 504 through 506
  • Assignment Exercise 21–1: Cost of Owning and Cost of Leasing Cost of owning and cost of leasing tables are reproduced below. Required Using the appropriate table from the Chapter 12 Appendices, record the present-value factor at 10% for each year and compute the present-value cost of owning and the present value of leasing. Which alternative is more desirable at this interest rate? Do you think your answer would change if the interest rate was 6% instead of 10%? Cost of Owning: Anywhere Clinic—Comparative Present Value For-Profit Cost of Owning: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow (48,750) 2,500 2,500 2,500 2,500 5,000 Present-value factor Present-value answers = Present-value cost of owning = Cost of Leasing: Anywhere Clinic—Comparative Present Value Line# For-Profit Cost of Leasing: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 19 Net Cash Flow (8,250) (8,250) (8,250) (8,250) (8,250) —- 20 Present-value factor 21 Present-value answers = 22 Present-value cost of leasing =
    Assignment Exercise 21–2 Great Docs, a three-physician practice with two office sites, is considering whether to buy or lease a new computer system. Currently they own a low-tech (and low-cost) information system. The new system will have to meet all government specifications for an electronic health record system and will also have to connect the two office sites. It will be considerably more sophisticated than the current hardware and software and thus will require training for office staff, clinical staff, and the physicians. Everyone agrees there will be a learning curve in order to reach the system’s full potential. Doctor Smith, the majority owner of the practice, wants to buy a medical records system from Sam’s Club. He argues that the package is supposed to electronically prescribe, track billings, set appointments, and keep records, so it should meet their needs. The cost of the first installed system is supposed to be $25,000, plus $10,000 for each additional system. The doctors are not sure if this means $25,000 for one office site plus $10,000 for the (connected) second office site for a total of $35,000, or if this means $25,000 for the first installed system plus $10,000 each for three more doctors, for a total of $55,000. There is also supposed to be $4,000 to $5,000 in maintenance costs each year as part of the purchased package. Doctor Smith proposes to pay 20% down and obtain a five-year installment loan from the local bank for the remaining 80% at an interest rate of 8%. Doctor Jones, the youngest of the three physicians, has been recently added to the practice. A computer nerd, he wants to lease a complete system from the small company his college roommate began last year. While he has received a quote of $20,000 for the entire system including first year maintenance, it does not meet the government requirements for an electronic health record system. Consequently, the other two doctors have outvoted Doctor Jones and this system will not be seriously considered. Doctor Brown, the usual peace-maker between Doctor Smith and Doctor Jones, wants to lease a system. He argues that leasing will place the responsibility for upgrades and maintenance upon the lessor company, and that removing the responsibilities of ownership is advantageous. He has received a quote of $20,000 per year for a five-year lease that includes hardware and software for both offices, that meets the government requirements for an electronic health record system, and that includes training, maintenance, and upgrades. Required Summarize the costs to the practice of owning a system (per Doctor Smith) versus leasing (per Doctor Brown). Include a computation of comparative present value. (Refer to Assignment 21-1 for setting up a comparative present-value table.)
    Assignment Exercise 21–3 Metropolis Health System has to do something about their ambulance situation. They have to (1) buy a new ambulance, (2) lease a new one, or (3) renovate an existing ambulance that MHS already owns. Rob Lackey, the Assistant Controller, has been asked to gather pertinent information in order to make a decision. So far Rob has found these facts: 1. It will cost at least $250,000 to purchase a new ambulance, although the cost varies widely depending upon the quantity and sophistication of the emergency equipment contained on the vehicle. 2. In order to renovate the existing vehicle, it will cost at least $100,000 to purchase and install a new “box.” (In other words, a new emergency-equipped body is installed on the existing chassis.) Rob has found this existing ambulance has an odometer reading of 80,000 miles. The vehicle will also need a new fuel pump and new tires, but he believes these items would be recorded as repair and maintenance operating expenses and thus would not be included in his calculations. 3. Lease terms for ambulances also vary widely, but so far Rob believes a cost of $60,000 per year is a ballpark figure. Required How much more information should Rob have before he begins to make any calculations? Make a list. Which alternative do you believe would be best? Give your reasons