I need to develop an operating budget for the Emergency Room Department at Sparr

Question

I need to develop an operating budget for the Emergency Room Department at Sparrow Hospital in Lansing, Michigan. I have questions 1,2 covered and would like assistance with 3-7. For question 2, the two different revenue sources I'd like to use are the Emergency Room CT scanner and the Emergency Room x-ray machine.

To develop a operating budget for a Revenue Producing Department. Requirements: 1. Briefly describe the Objectives or Function for the Department you selected 2. Select and describe two different Revenue sources that are important services from the department selected 3. Project the expected volume for these services 4. Develop a expense budget for these two services inclusive of variable and fixed costs 5. List and describe the key assumptions used for both the revenue and expense portion of the financial plan 6. Identify the key references utilized 7. Briefly describe the method you may have used in preparing the financial plan, for example a conventional or zero based budgeting approach The written report is worth 170 points and will be due on Friday of Unit 7 This assignment will require between 3 and 5 pages to complete. Information from Chapter 6 will help in preparing your report

Explanation / Answer

The question is specific to Hospital. The answer would be based on a general budget preparation technique:

Pt 3. The expected volume for the above two departments may be budget on the basis of past trends. An analytical approch may be followed here to identify the trend after due verifivcation of the financial statements of the hospital or a personal visit may be prefereed to get more accurate result and data for the project.

depending on th trend followed in the past years in both the department, an average increase in trend may be calculated and the percentage od such average increase may be added to the immediately preceeding financial years or budgeted period's figures to determine the projected volume of these service in the future years to come.

Pt. 4 Mainly an expense budget is segregated on th basis of fixed and variable costs or identifiable and unidentifiable cost or specific cost and unallocable cost, etc.

Accordingly, in case of the above two departments the fixed cost and variable cost may be some of the following:

FIXED Cost 1. rent of equipment i.e. CT scanner or X-ray Machine

2. Annual Maintainence charges

3. Salary of the machine operaing staff, etc

VARIABLE Cost 1. Electricity charges for operating the machine

2. Damage, Spare parts repairs

3. X-ray sheets, etc.

Also, it may be noted that generally the fixed expense would remain constant as compared to the previous year. However, an increase in charges as per the terms of contract may result in increase in the budget of Fixed cost.

Similarly, for Variable Cost, a general trend of increase or decrease in some cases, may be analyse and accordingly the latest year budget may be adjusted.

Pt. 5 Key assumption for revenue and cost would be:

1. It may be assumed the the past trend would be generally followed and according the hike or decrease in the projected budget would stand valid.

2. Provision o contingency assumed in the budget would be on the reasonable basis considering the volume and its impact on the operations of the Hospital.

3. The No. of Inward and Outward patient would be on the basis of previous year unless any epidemic or crisis occurs leading to increase in the no. of patients drastically.

4. Such other assumptions as may be required.

Pt 6. Key references may be the annual report of the hospital, The auditors report, any publication of news journal mentioning the operaions of the hospital, etc.

Pt. 7. Financial planning is generally done by number of tecniques. Few of them are Zero Budget Technique, Conventional techniue or Traditional technique, Incremental technique etc.

Conventional Approach - Conventional budgeting means adding/ increasing the amounts of list of income and expenses of the previous budget and making relevant changes in the previous budget wherever required.

Zero Based Budgeting- Zero based budgeting approach as the name itself suggests every item of income and expense starts with zero base and every addition of amount to any and every item is required to be justified for including in the budget. It is very precise but time consuming.

The budget for the hospital wold be generally be prepared with conventional approach beacuse of certain assumptions which may not fir in zero based budgeting for te hospital particularly.

It may be noted that the above answer may be further elaborated and presented in the project.

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