Children’s Hospital of the King’s Daughters Health System in Norfolk, Virginia,

Question

Children’s Hospital of the King’s Daughters Health System in Norfolk, Virginia, introduced a new budgeting method that allowed the hospital’s annual plan to be updated for changes in operating plans. For example, if the budget was based on 400 patient-days (number of patients × number of days in the hospital) and the actual count rose to 450 patient-days, the variable costs of staffing, lab work, and medication costs could be adjusted to reflect this change. The budget manager stated, “I work with hospital directors to turn data into meaningful information and effect change before the month ends.” a. What budgeting methods are being used under the new approach? b. Why are these methods superior to the former approaches?

Please also show work in an excel spreadsheet.

Explanation / Answer

Answer :

a) New budget used is called Flexible Budget . under flexible budget we adjusts or flexes for changes in the volume of activity. The flexible budget is more relistic and comparable and useful than a static budget, which remains at one amount regardless of the volume of activity.

b) Flexibile budget is more superior than static budget , because it increase comparibility and provide more meaningfull data to management to asses Favrouable and un Favourable variance whether its labor, material or overhead .

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