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Budgeting is an important activity within every healthcare organization. The
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Budgeting is an important activity within every healthcare organization. The particular challenges encountered, however, can vary depending on the type of organization. A state or federally funded organization, for example, will likely have a budget that is allocated to it, and it needs to follow specific guidelines on how the money can be used. A for-profit organization, by contrast, will typically have more influence and flexibility in setting up its budget and making choices on matters such as how much to spend on marketing, patient care, or incentives for employees.
In addition to preparing budgets, as a healthcare administrator, you must also be able to evaluate whether or not you have achieved your budget using variance analysis. This is important because variance analysis measures the differences between the budget and actual results, and provides administrators with a starting point for correcting financial performance. For this Assignment, you conduct a variance analysis for a healthcare organization.
To prepare for this Assignment, review the Week 7 Assignment document provided to you by the Instructor. Examine the budgeted and actual revenues and expenses for a hospital. Reflect on concepts of budgeting and variance. Refer to Chapter 10 and Chapter 11 of Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications in this week’s Learning Resources for additional guidance.

Healthcare Financial Management and Economics

 

Week 9 Assignment—Budgeting and Variance Analysis

 

Instructions:

 

The following are budgeted and actual revenues and expenses for a hospital.

 

                                                Budgeted                                         Actual

Revenues

 

Surgical Volume                              2,500                                                  2,700

 

Gift Shop Revenues                                   $19,000                                              $20,000

 

Surgery Revenues                          $600,500                                           $850,750

 

Parking Revenues                          $16,000                                              $18,000

 

Expenses

 

Patients Days                                   27,000                                                27,000

 

Pharmacy                                          $120,000                                           $160,000

 

Misc Supplies                                   $66,000                                              $77,500

 

Fixed Overhead Costs                    $808,000                                           $880,000

 

Using an Excel spreadsheet to show your calculations:

 

  1. Determine the total variance between the planned and actual budgets for Surgical Volume. Is the variance favorable or unfavorable?
  2. Determine the total variance between the planned and actual budgets for Patient Days. Is the variance favorable or unfavorable?
  3. Determine the service-related variance for Surgical Volume.
  4. Determine the service-related variance for Patient Days.
  5. Prepare a flexible budget estimate. Present aside-by-side budget, flexible budget estimate, and the actual Surgical Revenues.
  6. Prepare a flexible budget estimate. Present aside-by-side budget, flexible budget estimate, and the actual Patient Expenses.
  7. Determine what variances are due to change in volume and what variances are due to change in rates. 

 

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