Ch. 33
The CEO of Barton Medical Center has rejected the recently assembled incremental budget as she does not believe it accurately projects resource needs. Specifically, she notes inpatient discharges are expected to decline and outpatient encounters are expected to increase so an incremental budget may provide too many or too few resources to caregivers. The CEO has requested the CFO prepare two flexible budgets, one for inpatient and one for outpatient services. The CEO knows the board of directors is concerned about the low profitability of inpatient and outpatient services and wants suggestions of how to increase profitability. The issue or goal is to construct a budget that supplies the appropriate level of resources based on output produced.
Deliverables The CFO has delegated to you the responsibility for creating the flexible budget and provided an income statement that separates inpatient and outpatient revenues and expenses (Table 33.2). You need to do the following: 1. Explain why actual net income is $2.081 million under budget. 2. Create the preliminary flexible budgets for inpatient and outpatient areas based on 12,200 forecasted discharges and 611,072 outpatient encounters and the inflation factors used in the rejected incremental budget (Table 33.1). After the flexible budgets are created, roll them up with the other revenue estimate from Table 33.1 to create the master budget for Barton. 3. Compare the preliminary flexible budget with the initial incremental budget and explain the major changes. 4. Draft suggestions for enhancing profitability including changes in volume, revenue enhancements, and/or cost reductions. 5. Restate the flexible budget for actual volumes assuming the 2023 fiscal year has ended and actual inpatient discharges and outpatient encounters are 12,260 and 610,233.
CH: 34
Financial performance for Barton Medical Center is running lower than expected for the first six months of 2022. Two members of the board of directors want to understand the causes of the lower performance and what can be done to increase net income. The CFO has delegated the task to you and provided income statements and operating statistics for the medical center. Supplemental financial reports have been created for inpatient and outpatient services so a better understanding of the performance of the two primary business lines can be achieved (i.e., are the lower financial results due to changes that affect inpatient, outpatient, or both revenue lines?). You should note that the budgeted net income, $5.9 million, was due almost entirely to the $5.8 million budgeted other revenues. Inpatient and outpatient services were budgeted at break-even. The issue is to identify why net income is lower than budgeted and determine how financial performance can be improved.
Deliverables 1. Calculate price (revenues), cost (expenses), and volume variances for the medical center using discharges as the output variable. 2. Calculate price, cost, and volume variances for inpatient services using discharges as the output variable. 3. Calculate price, cost, and volume variances for outpatient services using outpatient encounters as the output variable. 4. Describe the changes in output, revenue, and expenses for inpatient and outpatient services. 5. Prepare recommendations for increasing net income.
