Assignment Exercises 15-1, 15-2, 15-3, and 15-4 on pages 494 through 495
- Assignment Exercises 16-1 on page 497
Assignment Exercise 16–1: Capital Expenditure Proposals Ted Jones, the Surgery Unit Director, is about to choose his strategy for creating a capital expenditure funding proposal for the coming year. Ted’s unit needs more room. The Surgery Unit is running at over 90% capacity. In addition, a prominent cardiology surgeon on staff at the hospital wants to create a new cardiac surgery program that would require extensive funding for more space and for new state-of-the-art equipment. The surgeon has been campaigning with the hospital board members. Required What should Ted decide to ask for? How should he go about crafting a strategy to justify his request, given the hospital’s new scoring system?
- Assignment Exercises 17-1, 17-2, and 17-3 on pages 498 through 500
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 Exercises 18-1, 18-2, and 18-3 on pages 500 through 501
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.
- Assignment Exercises 20-1 on pages 503 through 504
Assignment Exercise 20–1: Financial Statement Capital Structures Required Find three different financial statements that have varying capital structures. Write a paragraph about each that explains the debt-equity relationship and that computes the percentage of debt and the percentage of equity represented. Also note whether the percentage of annual interest on debt is revealed in the notes to the financial statements. If so, do you believe the interest rate is fair and equitable? Why?
- Assignment Exercises 21-1, 21-2, and 21-3 on pages 504 through 506
Assignment Exercise 21–1: Cost of Owning and Cost of Leasing Cost of owning and cost of leasing tables are reproduced below. Required Using the appropriate table from the Chapter 12 Appendices, record the present-value factor at 10% for each year and compute the present-value cost of owning and the present value of leasing. Which alternative is more desirable at this interest rate? Do you think your answer would change if the interest rate was 6% instead of 10%? Cost of Owning: Anywhere Clinic—Comparative Present Value For-Profit Cost of Owning: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flow (48,750) 2,500 2,500 2,500 2,500 5,000 Present-value factor Present-value answers = Present-value cost of owning = Cost of Leasing: Anywhere Clinic—Comparative Present Value Line# For-Profit Cost of Leasing: Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 19 Net Cash Flow (8,250) (8,250) (8,250) (8,250) (8,250) —- 20 Present-value factor 21 Present-value answers = 22 Present-value cost of leasing =Assignment Exercise 21–2 Great Docs, a three-physician practice with two office sites, is considering whether to buy or lease a new computer system. Currently they own a low-tech (and low-cost) information system. The new system will have to meet all government specifications for an electronic health record system and will also have to connect the two office sites. It will be considerably more sophisticated than the current hardware and software and thus will require training for office staff, clinical staff, and the physicians. Everyone agrees there will be a learning curve in order to reach the system’s full potential. Doctor Smith, the majority owner of the practice, wants to buy a medical records system from Sam’s Club. He argues that the package is supposed to electronically prescribe, track billings, set appointments, and keep records, so it should meet their needs. The cost of the first installed system is supposed to be $25,000, plus $10,000 for each additional system. The doctors are not sure if this means $25,000 for one office site plus $10,000 for the (connected) second office site for a total of $35,000, or if this means $25,000 for the first installed system plus $10,000 each for three more doctors, for a total of $55,000. There is also supposed to be $4,000 to $5,000 in maintenance costs each year as part of the purchased package. Doctor Smith proposes to pay 20% down and obtain a five-year installment loan from the local bank for the remaining 80% at an interest rate of 8%. Doctor Jones, the youngest of the three physicians, has been recently added to the practice. A computer nerd, he wants to lease a complete system from the small company his college roommate began last year. While he has received a quote of $20,000 for the entire system including first year maintenance, it does not meet the government requirements for an electronic health record system. Consequently, the other two doctors have outvoted Doctor Jones and this system will not be seriously considered. Doctor Brown, the usual peace-maker between Doctor Smith and Doctor Jones, wants to lease a system. He argues that leasing will place the responsibility for upgrades and maintenance upon the lessor company, and that removing the responsibilities of ownership is advantageous. He has received a quote of $20,000 per year for a five-year lease that includes hardware and software for both offices, that meets the government requirements for an electronic health record system, and that includes training, maintenance, and upgrades. Required Summarize the costs to the practice of owning a system (per Doctor Smith) versus leasing (per Doctor Brown). Include a computation of comparative present value. (Refer to Assignment 21-1 for setting up a comparative present-value table.)Assignment Exercise 21–3 Metropolis Health System has to do something about their ambulance situation. They have to (1) buy a new ambulance, (2) lease a new one, or (3) renovate an existing ambulance that MHS already owns. Rob Lackey, the Assistant Controller, has been asked to gather pertinent information in order to make a decision. So far Rob has found these facts: 1. It will cost at least $250,000 to purchase a new ambulance, although the cost varies widely depending upon the quantity and sophistication of the emergency equipment contained on the vehicle. 2. In order to renovate the existing vehicle, it will cost at least $100,000 to purchase and install a new “box.” (In other words, a new emergency-equipped body is installed on the existing chassis.) Rob has found this existing ambulance has an odometer reading of 80,000 miles. The vehicle will also need a new fuel pump and new tires, but he believes these items would be recorded as repair and maintenance operating expenses and thus would not be included in his calculations. 3. Lease terms for ambulances also vary widely, but so far Rob believes a cost of $60,000 per year is a ballpark figure. Required How much more information should Rob have before he begins to make any calculations? Make a list. Which alternative do you believe would be best? Give your reasons