Assignment Exercise 17–1: Variance Analysis

Assignment Exercise 17–1: Variance
Analysis
Greenview Hospital operated at 120%
of normal capacity in two of its departments during the year. It operated 120%
times 20,000 normal capacity direct labor nursing hours in routine services and
it operated 120% times 20,000 normal capacity equipment hours in the
laboratory. The lab allocates overhead by measuring minutes and hours the
equipment is used; thus equipment hours.
Assumptions:
For Routine Services Nursing:
• 20,000
hours × 120% = 24,000 direct labor nursing hours.
• Budgeted
Overhead at 24,000 hours = $42,000 fixed plus $6,000 variable = $48,000 total.
• Actual
Overhead at 24,000 hours = $42,000 fixed plus $7,000 variable = $49,000 total.
• Applied
Overhead for 24,000 hours at $2.35 = $56,400.
For Laboratory:
• 20,000
hours × 120% = 24,000 equipment hours.
• Budgeted
Overhead at 24,000 hours = $59,600 fixed plus $11,400 variable = $71,000 total.
• Actual
Overhead at 24,000 hours = $59,600 fixed plus $11,600 variable = $71,200 total.
• Applied
Overhead for 24,000 hours at $3.455 = $82,920.
Required
1. Set
up a worksheet for applied overhead costs and volume variance with a column for
Routine Services Nursing and a second column for Laboratory.
2. Set
up a worksheet for actual overhead costs and budget variance with a column for
Routine Services Nursing and a second column for Laboratory.
3. Set
up a worksheet for volume variance and budget variance totaling net variance
with a column for Routine Services Nursing and a second column for Laboratory.
4. Insert
input data from the Assumptions.
5. Complete
computations for all three worksheets.

Assignment Exercise 17–2:
Three-Level Revenue Forecast
Three eye-ear-nose-and-throat
physicians decide to hire an experienced audiologist in order to add a new
service line to their practice. They ask the practice manager to prepare a
three-level volume forecast as a first step in their decision-making.
Assumptions: for the base level (most
likely) revenue forecast, assume $200 per procedure times 4 procedures per day
times 5 days equals 20 procedures per
week times 50 weeks per year equals 1,000 potential procedures per year.
For the best case revenue forecast,
assume an increase in volume of one procedure per day average, for an annual
increase of 250 procedures (5 days per week times 50 weeks equals 250). (The
best case is if the practice gains a particular managed care contract.)
For the worst case revenue forecast,
assume a decrease in volume of 2 procedures per day average, for an annual
decrease of 500 procedures. (The worst case is if the practice loses a major
payer.)
*Audiologists were designated as
“eligible for physician and other prescriber incentives” as discussed
elsewhere. Thus the new service line was a logical move.
Required
Using the above assumptions, prepare
a three-level forecast similar to the example in Figure
17–5 and document your calculations.

Assignment Exercise 17–3: Target
Operating Income
Acme Medical Supply Company desires a
target operating income amount of $100,000, with assumption inputs as follows:
• Desired
(target) operating income amount = $100,000
• Unit
price for sales = $80
• Variable
cost per unit = $60
• Total
fixed cost = $60,000
Compute the required revenue to
achieve the target operating income and compute a contribution income statement
to prove the totals

Assignment Exercise 18–1: Estimate
of Loss
You are the practice manager for a
four-physician office. You arrive on Monday morning to find the entire office
suite flooded from overhead sprinklers that malfunctioned over the weekend.
Water stands ankle-deep everywhere. The computers are fried and the contents of
all the filing cabinets are soaked. Your own office, where most of the records
were stored, has the worst damage.
The practice carries valuable papers
insurance coverage for an amount up to $250,000. It is your responsibility to
prepare an estimate of the financial loss so that a claim can be filed with the
insurance company. How would you go about it? What would your summary of the
losses look like?
Assignment Exercise 18–2: Estimate
of Replacement Cost
The landlord carries contents
insurance that should cover the damage to the furnishings, equipment, and to
the computers, and the insurance company adjuster will come tomorrow to assess
the furnishings and equipment damage. However, your boss is sure that the
insurance settlement will not cover replacement costs. Consequently, you have
been instructed to prepare an estimate of what has been lost and/or damaged
plus an estimate of what the replacement cost might be. How would you go about
it? What would your summary of these losses look like?
Assignment Exercise 18–3:
Benchmarking
Review the chapter text about
benchmarking.
Required
1. Select
an organization: either from the Case Studies in Chapters
27–28 or from one of the Mini-Case
Studies in Chapters 29–31.
2. Prepare
a list of measures that could be benchmarked for this organization. Comment on
why these items are important for benchmarking purposes.
3. Find
another example of benchmarking for a healthcare organization. The example can
be an organization report or it can be taken from a published source such as a
journal article.