Gulf Private Hospital Gulf Private Hospital operates an outpatient clinic in Kuwait City. For several years, the Pediatrics clinic has struggled just to break even. The clinic’s financial budget for 2020 is shown below: 2020 Budget (KWD) Total Per Patient Revenues (4000 patients at KWD 180 each) 720 000 180 Cost of Services Doctors 240 000 Nurses and Technicians 180 000 Supplies 60 000 Overheads 252 000 732 000 183 Net Loss (12 000) (3) On the average, billings for each patient visit are expected to be KWD 180 (paid either in cash or via health insurance). Costs in 2020 are expected to average KWD 183 per patient visit, as follows: The clinic is currently staffed by one doctor who must be present whether or not there is a patient to see. Currently, about 10% of the doctor’s time is idle. The clinic employs nurses and technicians to meet the actual workload necessitated by patient appointments. Their cost averages KWD 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 2020 was expected to be KWD 180 000; the remaining KWD 72 000 of overhead varies with respect to patient visits. Included in the fixed overhead was KWD 30 000 of hospital-wide administrative costs that the hospital allocates to the clinic and KWD 37 500 of depreciation on the clinic’s property and equipment. Nora Amin, the controller of Gulf Private Hospital, reported the actual loss of KWD 20 200 in 2020 (shown below). 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. Mohammed Yousef, administrative VP of the hospital, in charge of the 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.” At the end of 2020, the clinic’s actual results for the year were as follows: 

Total Revenues (3800 patients at KWD 180 each) 684 000 

Cost of Services Doctors 231 000 

Nurses and Technicians 182 700 

Supplies 58 500 Overheads 232 000 704 200 

Net Loss (20 200) Doctor’s time KWD 60 

Nurse and Technicians time 45 

Supplies 15 

Overheads 63 

Total 183 

Tasks: 

a) Would Gulf Private Hospital have saved money in 2020 if the Paediatrics’ clinic was closed? Explain, providing your justifications. 

b) Analyze the actual results with the budget, and reconcile the differences in the budgeted loss of KWD 12 000 with the actual loss of KWD 20 200. (Hint: You should prepare a flexed budget and perform variance analysis). 

c) From the analysis of 2020 results in (b), what actions would you suggest to avoid a loss in 2021?