Patton-Fuller Community Hospital Operation Budget

Patton-Fuller Community Hospital Operation Budget Analysis

Caterina Hossack, the Chief Nursing Officer is proposing for the PFCH ? ("Patton-Fuller Community Hospital") (Patton-Fuller Community Hospital, 2010 p 1) ? To hire additional nursing staff because she believes that the policy will enhance quality of services. Presently, the Patron-Fuller hospital is maintaining

nursing ratio, which is 5 patients for every nurse. The argument of Caterina is that nurses have been overworked, and the issue is having negative effects on patient's care. By consequence, some nurses have left the PFCH for other hospitals. Based on the memo sent by Caterina to the President/CEO, the President has asked the Chief Financial Officer to prepare the financial data to compare whether giving nurses more raise vs. hiring additional nurses can solve the problems.

Objective of this paper is to prepare 2010 Operating Budget based on the labor decision selected from the Nursing Statistics memo?.

PART 1

The report chooses the policy decision to raise wage of nurses by $1 per hour. A raise will reduce the costs of operations compared to hiring additional nurses, which will skyrocket the costs of operations.

The table 1 reveals the costs of raising the nurse's wages vs. hiring additional nursing staff. The stimulation in the table 1 reveals that the PFCH will benefit from raising the wages of nurses rather than hiring additional nursing staff or reducing nursing- patient ratio from 1-to-5 to 1-to-4.

Table 1: "Simulation Effect of a $1 per hour raise for all nurses"

Jan

Feb

Mar

Apr

May

Jun

Total

"Number of Patients ?per- day"?

"Cost -of -nurse per hour w/benefits" $31.00

$31.00

$31.00

$31.00

$31.00

$31.00

Cost- of- nurse per 24 hour day?

$744.00

$744.00

$744.00

$744.00

$744.00

$744.00

"?Number of nurses per patient "5 to 1" nursing ratio ?"

0.2

Number of nurses -per -day

85.6

85.6

79.3

67.8

58.7

48.4

Nursing- cost per -day

$63,703

$63,680

$58,973

$50,448

$43,641

$36,001

Nursing -cost per- month

$1,974,781

$1,783,050

$1,828,163

$1,513,444

$1,352,862

$1,080,034

"Increase in cost per month based on $1 raise per nursing- hour?"

$63,702.62

$57,517.73

$58,973.00

$48,820.77

$43,640.71

$34,839.80

$307,494.63

"Increase in cost per month by changing nursing ratio from 5- to- 1 to 4 ?to- 1?"

$477,770

$431,383

$442,297

$366,156

$327,305

$261,299

$2,306,210

The table 2 presents the new 2010 operating budget for the Patton-Fuller.

Table2: New 2010 Operating Budget

2009 (Proj)

2010 Budgeted from % Change based on 2009 Projection

2010 Budget

Revenue

Net patient revenue

459,900

3%

473,697

Other revenue

3,082

15%

3,544

Total revenue

462,982

3%

477,241

Expenses

Salaries & benefits

220,752

1%

220,752

Supplies

74,584

-3%

72,198

Physician & professional fees

110,376

3%

113,687

Utilities

1,200

5%

1,260

Other

1,840

0%

1,840

Amortization & Depreciation (non-cash expenses)

36,036

0%

36,036

Interest

3,708

30%

4,820

Provision -- for- doubtful accounts

13,797

10%

15,177

Total expenses

462,293

10%

465,770

Income

Operating income

7%

Loss (non-operating income)

Investment income

-62

0%

62

Net income

8%

Source: Patton-Fuller Community Hospital, (2010) ?

PART II

Decision-making process in creating Budget

One of the importance of budget is to enhance decision making process. In other words, budget serves as a financial framework that can be used to make a decision on a course of action a company intends to implement. A business is required to control expenditures in order to effectively manage its operations. In the case of the Patton-Fuller Hospital, preparing operating budget is very critical to assist the organization to make a decision on whether to hire additional nursing staff or raise the wages of nurses by $1 per hour. The outcome of the operating budget will assist the board to make a decision whether to raise the nursing staff or hire more nurses to reduce the patients nursing ratio to 4 to 1.

Role of variance analysis for an operating budget

Variance analysis is the strategy of applying a quantitative investigation in order to determine the difference between planned and actual operating budget. One of the benefits of the variance analysis is to assist in controlling operating budget. More importantly, variance assists an organization to monitor budget performances because it will assist in comparing the current results with expected results. For example, if the net profits are too low, the organization can easily track the factors responsible for a decline in the net profits and implement a strategy to increase the net profits in the next fiscal year.

Difference between Financial Accounting and Managerial Accounting

The financial accounting is the aggregate of financial statements distributed to external stakeholders such as lenders, shareholders, investors, financial analysts and other people operating outside the organization. The financial accounting consists of income statements, balance sheet, statement cash flows, and stockholders'? equity. The financial accounting is prepared for the outside stakeholders such as investors to assist them making an investment decision about a company.

Contrarily, managerial accounting focuses in providing information of the internal operations of a company to assist management to make an effective decision. For example, cost accounting is an example of managerial accounting that assists management to compute costs of products that will assist in achieving effective manufacturing process. Contrary to financial accounting that only focuses on financial statements for the external stakeholders, managerial accounting covers aspect of planning, capital budgeting, break-event point, cost behaviors, standard costing and activity-based costing. Thus, financial accounting consists of financial information prepared for the external stakeholders, while management accounting consists of information for the internal stakeholders.

Analysis how GAAP apply to the Operating Budget Projection.

GAAP ("Generally Accepted Accounting Principles") are the U.S. accounting standards that allow companies to record and report financial statements in a uniform manner. The benefit of GAAP is that it assists the PFCH to project operating budget based on the past budgets. (Chew, Parkinson, 2013). Typically, PFCH uses the financial data of the past three or four years to project next operating budget. The strategy can assist an organization to plan for the future. (Colin, 2007).

Analysis of the two Labor Alternatives

This report supports the increase in the raise of nursing wages by $1 per hour rather than hiring additional nurses and reduces the ratio of nurse to patients from 1- to- 5 to 1-to-4. By raising the wages of nurses, additional costs of operations will be $307,494.63 in six months However, if the management decides to hire additional nurses, the additional costs of operations will be $2.3 Million within six months. Thus, the report recommends an increase in the raise of wages of nursing staff because the decision will assist the PFCH to manage the costs of operation to a minimum and enhancing quality of care within the organization.