Budgeting Homework

BUDGETING HOMEWORK 1

BudgetingHomework

UniversityAffiliation

AssignmentExercise 15-1: Budgeting

Seabury NursingCenter provides occupational, speech, and physical therapy to personsof varying ages. A budget plan is necessary to outline the expensesand incomes associated with running the facility.

DETAIL

BUDGETED AMOUNTS

ACTUAL AMOUNTS

VARIANCE

ORIGINAL

FINAL

Operating Income

$

$

$

$

Medicaid

3,000,000

3,100,000

3,500,000

400,000

Medicare

4,000,000

4,200,000

4,300,000

100,000

Private Pay

500,000

530,000

520,000

(10,000)

Hospice

1,000,000

1,200,000

1,100,000

(100,000)

Total Operating Income

8,500,000

9,030,000

9,420,000

390,000

DETAIL

BUDGETED AMOUNTS

ACTUAL AMOUNTS

VARIANCE

ORIGINAL

FINAL

Operating Expenses

$

$

$

$

General &amp Administrative

5,000

5,100

4,500

(600)

Staff Salaries

9,000

9,000

10,300

1,300

Housekeeping

6,000

6,300

7,000

700

Laundry

2,000

2,600

3,000

(400)

Maintenance

1,000

1,700

2,000

300

Medical Expenses

3,500

2,800

4,000

1,200

Marketing &amp Promotion

4,000

4,150

3,500

(650)

Social Services

3,600

3,800

3,200

(600)

Depreciation

2,450

2,450

2,450

Total Operating Expenses

36,550

37,900

39,950

1,250

Assumptions made:

  1. Medicaid and Medicare income receipts are assumed to be received at semi-annually at the standard rates for federal social institutions.

  2. The depreciation of hospital equipment is calculated on straight line basis.

  3. Marketing promotion is detached from social services.

Budget Critique

The proposed volume of the new budget is $9.42 million. Inflow andoutflow should have an inverse relationship such that increase in onefactor automatically reduces the other factor. Such a relationshiphelps to explain the timing of the cash flows. The new budget periodwill cover a whole year. Therefore, the appropriate dollar cost willencompass the annual average of regular expenses. The budget createsroom for an additional service-related workload. The institution willrequire an increasing number of staff members to handle theobligations at the facility. Staff will include both professional andnon-professional persons working at the nursing home.

The budget makesroom for the incorporation of additional resources. This includespotential revenues and expenses from external organizations. In thisregard, the budget will accomplish the necessary objectives forSeabury Nursing Center.

AssignmentExercise 15-2: Budgeting

WEAKLYCOUNTY NURSING CENTER

FINANCIALBUDGET

30thJUNE 2012

DETAIL

BUDGETED AMOUNTS

ACTUAL AMOUNTS

VARIANCE

ORIGINAL

FINAL

Operating Income

$

$

$

$

Medicaid

4,000,000

4,100,000

3,900,000

(200,000)

Medicare

3,500,000

3,700,000

4,000,000

300,000

Private Pay

500,000

520,000

530,000

10,000

Hospice

1,000,000

1,300,000

1,200,000

(100,000)

Total Operating Income

9,000,000

9,620,000

9,630,000

10,000

DETAIL

BUDGETED AMOUNTS

ACTUAL AMOUNTS

VARIANCE

ORIGINAL

FINAL

Operating Expenses

$

$

$

$

General &amp Administrative

5,400

5,500

4,900

(600)

Staff Salaries

15,000

15,000

16,300

1,300

Housekeeping

8,000

9,300

10,000

700

Laundry

4,500

4,600

5,000

(400)

Maintenance

6,900

5,700

6,000

300

Medical Expenses

25,000

20,800

22,000

1,200

Marketing &amp Promotion

16,000

16,850

17,500

(650)

Social Services

8,000

6,800

6,200

(600)

Depreciation

8,000

8,000

8,000

Total Operating Expenses

96,800

92,550

95,900

1,250

Assumptions made:

  1. The depreciation of all equipment is calculated on straight line basis.

  2. Medicare and Medicaid incomes are assumed to be received at semi-annually at the reasonable rates for federal social institutions.

Budget Critique

The proposedvolume of the new budget is $9.63 million. Inflow and outflowmanifest an inverse relationship such that decrease in one factorautomatically increases the other factor. Such a relationship explainthe different timing of the cash flows. The new budget period willcover a whole year. Therefore, the appropriate dollar cost willencompass the annual average of regular prices. The budget createsroom for an additional service-related workload. The institution willrequire an increasing number of staff members to handle theobligations at the facility. Staff will include both professional andnon-professional persons working at the nursing home.

The budget makesroom for the incorporation of additional resources. This includespotential revenues and expenses from external organizations. In thisregard, the budget will accomplish the necessary objectives forWeakley County Nursing Home.

Budget Review

This budget isflexible since it is adjustable for volume throughout the year. Mostof the figures have been fixed due to the precise nature of payments.However, the budget is not for a defined authoritative unit. Themanager lacks the mandate required to control all revenues andexpenses. The format of the budget adheres to the pattern of previousperiods. This makes it possible for several reports to be comparedover time. The figures are indeed annualized to provide a widerperspective of the revenues and expenditure. A test of the line-itemcalculation reveals some discrepancies in the correct value of thedollar. The percentage is solely based on a portion of the budgetfigure.

AssignmentExercise 15-3: Transactions outside the Operating Budget

Figure 15-2illustrates the financial transactions recorded outside the operatingbudget. The organization receives grants from various internationalbodies. Therefore, such organizations retain the right to dictate howcertain funds will be used. Some funds may be withheld for investmentor security purposes. In this regard, handling such funds requiresdistinct accounting approaches. Furthermore, the Weakley CountyNursing Home operates as a legally separate entity. This implies thatthe foundation can transact certain business that is recorded indifferent accounts. Legal separation is necessary for variousreasons. Firstly, it safeguards the liability of persons that controlthe daily affairs of the organization. It also protects the rights ofthe patients since it guarantees continuous payment of the hospitalfees.

AssignmentExercise 15-4: Identified versus Allocated Costs in Budgeting

Figure 15-3illustrates the different types of expenses captured in adepartmental operating budget. The budget serves as a guide thatdirects expenditure in a particular entity. The costs incurred by adepartmental budget can be classified as either identifiable orallocated. Identifiable costs refer to specific amounts incurred bythe department in fulfilling its duties. For example, direct patientcare amounts to specific figures. Patients in the hospital requirefood and medication as provided by the hospital. The costs incurredduring the provision of such care is never estimated. Supportingpatient care involves the costs associated with utilizing hospitalequipment. The hospital ambulance is only used for transport whenpatients need emergency, specialized care from distant healthinstitutions. Admission stations also serve to provide in-patientswith close medical attention. Therefore, new treatment facilitieswill be set up when the need for space arises. Costs of supportingpatient care are also precise since they occur periodically.Identifiable costs are unique in that they fluctuate every monthdepending on the number of patients who receive care at the hospital(Garavaglia, 2008). A hospital receives different numbers of patientseach month due to random factors.

On the otherhand, allocated costs refer to expenses whose incurrence isguaranteed. Allocated costs can usually be predicted with fullcertainty. For example, general and administration expenses includethe wages and salaries paid to hospital workers. Doctors, nurses,janitors, lab technicians, and maintenance personnel usually grossspecific amounts as monthly salaries. The hospital board members alsoearn pre-determined commissions. Patient-related expenses refer tocosts such as scheduled maintenance of various hospital facilities.Surgical wards and treatment rooms require regular maintenance so asto remain clean and functional. Costs of maintenance are incurredregardless of the number of patients receiving care at the hospital.A health facility may also be contractually obligated to buy acertain quantity of medical supplies so as to replenish dwindlingequipment (Garavaglia, 2008). Allocated costs are always predictableand certain to be incurred.

Financial-relatedexpenses such as interest expense may not feature in the operatingbudget since they do not impact the outflows and inflows of thehospital. Moreover, interest expense is usually determined usingseveral methods. If the interest is calculated on the reducingbalance of the hospital`s loan, this will make it highly irregular.Annual repayments of the loan would lead to a gradually decreasinglevel of interest. Due to this, financial-related expenses may not beincluded in the departmental operating budget.

AssignmentExercise 16-1: Capital Expenditure Proposals

Ted Jones seeksto place a request to spend hospital money so as to acquire physicalassets for the surgical unit. The Surgery unit is running at close tofull capacity due to space constraints. At the same time, a prominentcardiac surgeon seeks a similar authorization from the hospitalboard. Both requests made by Ted Jones and the cardiology surgeonstand little chance of winning joint approval from the hospitalboard. The capital-intensive nature of both projects threatens tostrip the hospital resources. Given this, Ted should consider makinga mutually-exclusive investment proposal. As discussed, seeking toaccomplish both projects simultaneously would not be feasible for thehospital. Therefore, Ted should ask for funding at the expense of thecardiology surgeon.

To justify hisrequest, Ted should craft a strategy highlighting the merits of hisproposal while revealing the demerits of the surgeon’s request. Tedshould also align his capital expenditure proposal with the newscoring system adopted by the hospital. He needs to outline variousfactors that will enable him draft a proper strategy. The firstaspect concerns ascertaining a reasonable and measurable estimate ofthe amount of resources needed. Different capital projects requirevarying amounts of finance. The current surgery unit runs at over 90%capacity. Constructing a new surgery unit may require a substantialoutlay of funds. These funds will not only construct the building butalso furnish it with new surgical equipment and facilities. It may beeasier to estimate the cost of the new facility if it has the samesize as the current one. Ted should also consider whether expandingthe current surgery unit may suffice so as to lower costs. The newscoring system highlights the importance of affordability of capitalexpenditures. Therefore, the hospital board will be more persuadedtowards an affordable venture.

Ted should alsoconsider the necessity of incurring the proposed capital expenditure.It may be useful for Ted to establish the drawbacks of the currentcongestion at the surgery unit. The hospital board will examine theadvantages of building a new surgery unit vis-à-vis sticking withthe current surgery unit. The projected revenues and expenditure fromthe proposed new facility also need to be highlighted. The newscoring system places a high value on projects that remit the mostreturns at the least cost. Ted will need to consider the prospectivereturns from setting up a new surgery unit. These returns should bematched against expected costs of running such a facility. Thehospital board will consider the annual number of surgery patientsadmitted to the hospital. This will help the board to determine notonly the necessity but also profitability.

As the Directorof the Surgery Unit, Ted needs to be aware of potential non-moneyfactors that may influence the ultimate decision. For example, thehospital board will undoubtedly consider the general conduct ofsurgeons at the hospital. Their diligence and rapport with patientswill reflect their reliability. The Board will also evaluate theratio of successful surgeries performed by the surgeons at thehospital. This will include pinpointing the factors that contributedto a patient dying during surgery. Many cases of negligence by thestaff may dissuade the board from granting the request. The hospitalwill take steps necessary to reduce its liability for suits filed bydisgruntled patients.

References

Garavaglia, B. (2008). Finance &amp budgeting for nursing homeprofessionals. Marblehead, MA: HCPro.

Weakley County Nursing Home. (2015). Retrieved from:http://www.weakleycountytn.gov/nursinghome.html