Using these metrics to look forward will enable you to more effectively plan budgets that accomplish organizational goals. When developing a budget, what variables do you have to take into account? In health care organizations, two of the largest groups of factors that you must consider are first, volume, and second, staffing and supply. The number of patients and tests performed each day, as well as employees and their pay rates are all crucial pieces of information when determining a budget. In this Assignment, you address five scenarios: net revenue, fixed and variable costs, cash flow, volume budget, and staffing and supplies budget. Note: For those Assignments in this course that require you to perform calculations you must: •Use the Excel spreadsheet template for the Week 5 assignment.
•Show all your calculations and formulas in the spreadsheet. •Answer any questions included with the problems (as text in the Excel spreadsheet). A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet. For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials. To prepare: •Review the information in this week’s Learning Resources regarding net revenue, fixed and variable costs, and cash flow, and how they are used in financial decision making. •Review the budgeting information in Week 5 Learning Resources dealing with volume, staffing, and supplies budget.
Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet. Scenario 1: Net Revenue Scenario Your clinic provides four kinds of services: •Comprehensive initial medical consultation is priced at $250 •Established patient limited visit is priced at $75 •Established patient intermediate visit is priced at $125 •Established patient comprehensive visit is priced at $250 Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months? Scenario 2: Fixed/Variable Cost Scenario You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V). Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of $165 per procedure (with a 100% collection rate). Your board has mandated that you make $5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer? Hint: Calculate the variable cost. Scenario 3: Cash Flow Scenario Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows: Question: If you have $380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate. Scenario 4: Volume Budget Scenario You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits. Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at $20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for? Example on Template: 2 North Bldg calculated. You will need to complete 2 South Bldg, ICU and OPD Scenario 5: Staffing and Supply Budget Scenario Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%. In reviewing performance to date, you note that in January, you purchased $150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned $2,800 of office supplies for credit from the vendor in Febuary. These supplies were purchased in a previous fiscal year. You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 FTEs. A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at $16.00 per hour.
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