Question must be presented in Excel with table

As a newly hired budget analyst, you were assigned to the Swedish Hospitals finance department. Currently the Hospital is planning its operating budget for the coming year. The budget will include operating, cash and flexible budget components. Capital budget was passed last year and needs not to be revisited. The hospital is noted for its three fine programs: oncology (cancer), cardiac (heart) and rhinoplasty (nose jobs).

Revenue

The hospital managers have projected that next year they will have 200 patients. They expect 90 oncology patients, 50 cardiac patients, and 60 rhinoplasty patients.

The average charge, or list price, for oncology patients is $80,000. Cardiac patients will be charged an average of $50,000, and rhinoplasty will charge $55,000 per patient. However, the charges often are not the actual amounts ultimately received.

Assume that private insurance companies will pay the full charge of list price. However, Medicare and Medicaid rates will pay as follows: oncology patients - $60,000, cardiac patients - $35,000, and rhinoplasty patients - $30,000. Self-pay patients are expected to pay the full charge, but generally 20% of self-pay charges become a bad debt. Note that bad debts are treated as expense in health care. They may not be shown as a reduction in revenue: the full charge for self-pay patients is shown as revenue, and then bad debts are reflected as an expense. No payment for charity care is ever received, so charity care is not shown as a revenue or expense.

The payer mix is as follows:

	Private insurance	Medicare/Medicaid	Self-Pay	Charity
Oncology	50%	30%	15%	5%
Cardiac	50%	40%	5%	5%
Rhinoplasty	40%	20%	25%	15%

Gift shop is projected to earn $70,000 for the current year and is expected to remain the same. The hospital has an endowment that brings in an additional $500,000 in interest income per annum (per year).

Expenditures

The hospital expects to employ workers in the following departments:

	Oncology	Cardiology	Rhinoplasty	Total
Managers	600,000	500,000	300,000	1,400,000
Staff	3,000,000	2,000,000	500,000	5,500,000
Total	3,600,000	2,500,000	800,000	6,900,000

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

	Total
Oncology	400,000
Cardiology	200,000
Rhinoplasty	200,000
Total	800,000

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

Swedish hospital currently pays rent on its buildings and equipment of $100,000 per year, paid quarterly at $25,000 each quarter. Rent is expected to remain unchanged next year.

Flexible budget

The hospital usually prepares 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 managers are fixed costs (manager salaries do not change with the patient volume). The staff salaries are variable costs (expenses) in all areas. All salaries are paid in equal amounts each month. Variable salaries are paid in direct proportion to patient volume. Supplies vary in direct proportion to patient volume.

The Task:

Prepare a flexible budget assuming patient volumes are 5 and 10 per cent higher and 5 and 10 per cent lower than expected. Also include the initially expected patient volume level in the flexible budget.