Flexible Budget and Cash Budget.

I already have the answer for the Section A and Section B. Need assistance on Section C, D, and E. See below Thank you

Denison Specialty Hospital is planning its master budget for the coming year. The budget wil include operating, capital, cash and flexible budgets. The hospital is noted for its three fine programs: oncology (cancer), cardiac (heart), and rhinoplasty (nose jobs).

Section A

The managers at Denison have been busy working. They have reviewed past records and considered changes in competition, the general economy, and overall medical trends. Using past charges and anticipated rates of medical inflation, they have also made a first attempt at setting thier prices.

Based on a thorough review and discussion of these data, they have projected that next year they will have 240 patients. They expect 120 oncology patients, 80 caridace patients, and 40 rhinoplasty patients.

The charge, of list price, for oncology patient will average $50,000. Cardiac patients will be charged on average of $40,000, and rhinoplasty, $25,000 per patient. However, those charges are not the actual amounts ultimately received.

The amount the hospital receives depends on whether patients pay their own hospital bills or have healthcare insurance. Assume that private insurance companies pay the full charge or list price. However, Medicare and Medicaid have announced rates they will pay for the coming year as follow: oncology patients $40,000, cardiac patients $30,000, and rhinoplasty patients $10,000. Self-pay patients are supposed to pay the full charge, but generally 25 percent of self-pay charges become a bad credit. Note that bad credit are treated as an expense in healthcare. They may not be shown as a reduction lowering revenues. The full charge for self-pay patients is shown as revenues, and then the uncollectible amount is shown as an expense. No payment for charity care is ever recieved, and charity care is not shown s a revenue or expense.

The payer mix is as follows:

Private insurance	Medicare/Medicaid	Self-Pay	Charity
Oncology	30%	50%	10%	10%
Cardiac	20%	60%	10%	10%
Rhinoplasty	10%	20%	60%	10%

Gift shop revenue is projected to be $120,000 for the current year and is expected to remain the same. However, this revenue will increase or decline in proportion to charges in patient volume.

Denison Hospital has an endowment of $1,000,000. It is invested as follows:

-$500,000 in 6 percent U.S. Governement Bonds that pay interest annually

-$250,000 in AT&T stock, which pays a dividend of 8 percent annually

-$250,000 in growth stocks that pay no dividend

Section A requirements:

1. Calculate patient revenue on an accural basis for the coming year. Subdivide revenue by program, and with each program subdivide it by type of payer.

2. Calculate endowment revenue on an accural basis for the coming year.

3. Prepare a revenue budget on an accural basis, including all sources of revenue discussed previously. The revenue budget does not have to show all of the detail from requirements 1 and 2, but should show each major source of revenue, such as patient services and endowment.

Section B

The hospital expects to employ worker in the following departments

	Radiology	Nursing	Administration	Total
Managers	100,000	200,000	200,000	500,000
Staff	1,900,000	4,200,000	300,000	6,400,000
Total	2,000,000	4,400,000	500,000	6,900,000

Supplies are expected to be purchased throughout the year for the departments, as follows:

	Total
Radiology	360,000
Nursing	160,000
Administration	20,000
Total	540,000

Assume that all supply use varies with the number of patients.

Denison Hospital currently pays rent on its building and equipment for $300,000 per year. Rent is expected to be unchanged next year. The rent is paid $75,000 each quarter.

To better serve its patients, Denison would like to buy $500,000 of new oncology equipment at the start of the year. It would be paid for immediately upon purchase. The equipment has a 5-year life and would be expected to be used up evenly over that lifetime. Although the capital budget would normally include justification for why the equipment is needed, it is sufficient for our purpose to know that the capital budget for Denison is $500,000 and the equipment to be purchased has 5-year useful life. It will have no value left at the end of the 5 years. Denison charges the cost of its capital acquisitions on a straight-line depreciation basis. The means that the cost is spread out over the useful life, with an equal being charged as an expense, called depreciation expense, each year.

Section B Requirements:

1. Calculate expected bad debt expenses on an accural basis for the coming year

2. Calculate an expense budget on a accural basis for the coming year. The expense budget does not require detailed information by program or department, but should show each type of expense as salaries and supplies. Be sure to consider the impact of capital acquisitions on the expense budget.

3. Combine the revenue (section A) and expense budget to present an operating budget for the coming year.

Section C.

The Programs at Denison consume the services of departments as follows:

	Radiology	Nursing	Administration
Oncology	80%	50%	50%
Cardiac	15%	40%	35%
Rhinoplasty	5%	10%	15%

That is, oncology patients consume 80 percent of the services of the radiology department but only 50 percent of the nursing provided. Note that Denison classies rent, depreciation, and bad debts expenses as "general expenses" rather than assigning them to any specific department. However, if equipment can be specifically traced to a program, the depreciation on that equipment is charged to that program.

Section C Requirements:

1. In part I, Section B, number 2, you prepared a line-item expense budget on an accural basis. Prepare the expense budget again as a responsibility center budget, showing the projected cost for each department (radiology, nursing, and administration).

2. Prepare an expense budget with expenses shown by program (oncology, cardiac, rhinoplasty). For simplicty, assume that bad debts are not assigned to specfic programs.

Section D

The hospital usually prepare a flexible budget as part of its annual master budget to assess the likely impact of patient volume variations on revenues and expenses.

The salaries of manager are all fixed costs. That type of expense does not change as patient volume changes. The staff salaries are variable costs(expenses) in all areas except in the administration department, where they are fixed. All salaries are paid in equal amounts each month. Variable salaries vary in direct proportion to patient volume. Supplies vary in direct proportion to patient volume.

1. Prepare a flexible budget assuming patient volumes are 10 percent and 20 percent higher and 10 percent and 20 percent lower than expected. Also include the expected patient volume level in the flexible budget. Prepare the flexible budget before doing the cash flow budget in Section E.

Section E

Patients are expected to be treated and discharged throughout the year as follows:

Quarter 1	Quarter 2	Quarter 3	Quarter 4
January-March	April-June	July-September	October-December	Total
30%	25%	20%	25%

Historically, Dension has found that private insurance pays in the quarter after patient discharge. Medicare/Medicaid pays half in the quarter after discharge and half in the following quarter. Twenty-five percent of all self-pay revenue is collected each quarter for three quarters following discharges. Twenty-five percent is never collected. Also charity care is never collected.

For simplicity, assume that the current year's patient flow, payment rates, staffing, and supplies purchases are the same as those projected in the budget for the coming year. Supplies are expected to be purchased inthe following months.

Quarter 1	Quarter 2	Quarter 3	Quarter 4
January-March	April-June	July- September	October-December	Total
$150,000	$124,000	$138,000	$128,000	$540,000

The supplies are paid in the quarter after the purchase. Assume that all interest and dividends on endowment investments are received on the first day of the seventh month of the year. Asumme that gift shop revenue is received equally each quarter. (This may be an unrealistic assumptiom.) Asumme that salaries are paid equally each quarter.

Denison plans to start next year with $50,000 of cash and likes to end every quarter with at least $50,000 in its cash account. If necessary, it wil borrow from the bank at a rate of 12 percent per year. Each quarter it must pay interest on any outstanding loan balance from the end of the previous quarter. When it has extra cash, it repays its outstanding bank loan. If it has extra cash beyond that, it simply leaves it in its non-interest bearing cash account.

Dension prepares its operating budget (revenues and expenses) on an accural basis. The hopsital expects to buy the oncology equipment as described in Part 1 of the case.

Section E Requirements:

1. Prepare a cash budget for the coming year. It will help if you prepare in the following order:

a. Determine patient revenues by quarter by type of payer for the coming year. That is, determine private insurance revenues for each quarter, Medicare/Medicaid revenue by quarter, and so on.

b. Determine patient revenues by quarter for the current year. Since many payers pay with a lag, some of the coming year's cash receipts come from current year's revenues.

c. Determine patient cash collections by quarter for the coming year, using revenue information from parts a and b, and payment lag information provided in the narrative of the problem.

d. Develop the cash budget by quarter.

Thank you

SECTIONA Calculation of Patient Revenue Net Program Payer Net Amount Revenue Payer Mix (A) Volume (B) Volume C (D) IN$ E) IN $ CPD A B Oncology Private Insurance Medicare/Medicaid Self-Pa Chari 30% 50% 10% 10% 50000 1800000 40000 2400000 50000 600000 36 12 12 Cardiac Private Insurance Medicare/Medicaid Self-Pa Chari 20% 60% 10% 10% 16 400001 640000 300001440000 40000 320000 Rhinoplas Private Insurance Medicare/Medicaid Self-Pa Chari Total Patient Revenue 10% 20% 60% 10% 4 25000 100000 1000080000 25000 600000 24 4