Question The Copland Memorial Hospital is a general hospital serving a population of 300,000. It runs a modern pathology department. Part of the work of the pathology department is the testing of clinical samples for cancerous cells. Five thousand cancer tests are conducted every year. The hospital operates an internal accounting system where service departments, such as the pathology department, 'sell their services to the front-line clinical departments and are expected to break even. The pathology department's budget for the 2015/16 financial year, it is shown below: 000 Departmental Manager and Secretary 75 Laboratory Scientists: 10 @ 35.100 351 Laboratory Technicians: 25 @ 25,650 Chemical and clinical supplies 300 Electricity Maintenance of equipment 150 Apportioned General hospital overheads 146 1788 641 125 Pathology Department Pricing System Each Laboratory Scientist and each Laboratory Technician delivers 1,350 productive hours per year. Hourly rates are 26 and 19 respectively. For charging purposes within the hospital a 50% mark-up is applied to the hourly rates to cover the departmental overheads. The cost of chemical and clinical supplies required for each type of test is also charged. Thus the re-charge to clinical departments for the average cancer test will be: Laboratory Scientist: 0.8 hours @26 x 150% Laboratory Technicians: 2.7 hours @ 19 x150% Chemical and clinical supplies f 31.20 7695 30.00 138.15 The hospital management has recently been approached by a private healthcare company who have cut the costs of the pathology laboratory by using the latest test equipment. They are offering to provide up to 5.000 cancer tests per year at 110 cach. The Copland Memorial hospital managers are considering this offer as they are always keen to reduce costs. Within the departmental budget shown above both the electricity consumption and equipment maintenance costs are variable with activity. In the case of electricity consumption, 40% is variable relating to the operation of the technical equipment and, of that, 25% relates specifically to the cancer tests. For equipment maintenance 50% of the budget is variable with usage and of this 20% relates to the cancer tests. Investigation also reveals that most of the laboratory scientists and technicians are members of a trade union and would strongly resistant to any staff reductions in the department a) Based on the information you have been given, and on the assumption that there are to be no staffing reductions, show the relevant figures to decide whether or not to contract out the testing to the private healthcare company. Give your recommendation as to whether the offer should be accepted. (7 marks) b) Show similar calculations on the assumption that appropriate staff reductions, can be achieved by natural wastage. Make recommendations as to whether, in this case, the offer should be accepted. (3 marks) c) Assuming that the testing will be contracted out to the private healthcare company, show how many staff in each category can be saved. (3 marks) d) Copland Memorial Hospital is beginning to devote more of its work to cancer treatment. The management forecasts that there may be 1,000 additional cancer tests during this year not included in the budget above. This work can only be undertaken by requiring the laboratory scientists and technicians to work overtime, paid at overtime rates of 150% of normal rate. Would it be financially beneficial to use the private healthcare company for this work? (6 marks) e) Copland Memorial Hospital operates within a large city and there are other similar hospitals nearby. Discuss the factors to be considered if the local hospitals invest in one central pathology laboratory which would provide testing to all the participating hospitals. (6 marks) THE END
