8-54 Analyzing Performance Hopkins Community Hospital operates an outpatient clinic in a town several miles from the mai pital. For several years the clinic has struggled just to break even. The clinic's financial bud tio On the average, billings for each patient-visit are expected to be $180. Costs in 20X7 are ex to average $183 per patient-visit, as follows: 20X7 is shown in Exhibit 8-12. expected 60 45 15 Physician time Nurse and technician time upplies Overhead Total 183 The clinic is generally staffed by one physician who must be present whether or not there is a patient to see. Currently, about 10% of the physician's time is idle. The clinic employs nurses and technicians to meet the actual workload necessitated by patient appointments. Their cost averages $30 per hour, and usage varies proportionately with the number of patient-visits. Supplies cost is also variable with respect to patient-visits. Fixed overhead in 20X7 was expected to be $180,000: the remaining $72,000 of overhead varies with respect to patient visits. Included in the fixed overhead was $30,000 of hospital- wide administrative costs that the hospital allocates to the clinic and $37,500 of depreciation on the clinic's property and equipment. Cindy Ryden, controller of Hopkins Community Hospital, reported the actual loss of $20,200 in 20X7 shown next. This represented the fifth straight year of losses. She does not feel it is right for patients in the main hospital to subsidize those using the clinic. Therefore, she suggested that unless the situation could be changed, the clinic should be closed. Brett Johnson, administrative vice presi- dent of the hospital, charged with oversight of the clinic, disagreed: "We provide a valuable service to the community with the clinic. Even if we are losing money, it is worthwhile to keep it open. Total Per Patient Revenues (4,000 patients at $180 each) Cost of services Physicians Nurses and technicians Supplies Overhead Net loss $720,000 180 $240,000 80,000 60,000 252,000732,000 $ (12,000) 183 S (3) Exhibit 8-12 Outpatient Clinic 20X7 Budget f 20x7, the clinic's actual results for the year were as follows: th end o t the end of Total $684,000 Revenues (3,800 patients at $180) Cost of services Physicians Nurses and technicians (5,800 hours) Supplies Overhead Net loss $231,000 182,700 58,500 232.000704,200 $ (20,200) 1. Would Hopkins Community Hospital have saved money in 20X7 if the outpatient clinic was closed? Explain. 2. Explain the difference between the budgeted loss of $12.000 and the actual loss of $20,200 (that is, the static-budget variance of $8,200) in as much detail as possible. From the analysis of the 20X7 results, what actions would you suggest to avoid a loss in 20X8