Part 1: 2010 Operating Budget
Review the attached 2009 Budget Issues – “Nursing Options” PDF
Create Two new 2010 Operating Budgets for 2010, one based on each labor decision option from the Nursing Statistics memo in the Nursing Options PDF. Adjust the attached “2010 Operating Budget Projection” word document to develop your new projected budgets.  (should be 2 separate documents with the 2010 Budget column adjusted accordingly for each option)
Decide which of the two highlighted options (pink and yellow) you will implement from the Nursing Statistics Memo in the “Nursing Options” PDF.
Discuss decision-making processes in creating a budget.

Part 2: Analysis Paper
Write a 1,050- to 1,400-word paper. Your paper should:
1. Discuss decision-making processes in creating a budget.
2. Explain the role of variance analysis in maintaining an operating budget.
3. Differentiate between managerial accounting and financial management.
4. Explain generally accepted accounting principles applied to the health care industry and how they are applied to your Operating Budget Projection.
5. Discuss the decision between the two labor alternatives facing the management of PFCH and the annual cost increase of each.
6. Make a recommendation about which labor alternative should be chosen.
7. Justify and analyze the labor decision that you recommend. Your justification should present numbers related to fiscal management including how each decision affects the 2010 Budget Projection. 
8. Analyze the effect of your decision on the operating budget, including:
     A. The opportunity cost of your recommendation
     B. How your recommendation affects employee satisfaction
     C. How your recommendation affects patient care and patient satisfaction
Cite a minimum of 4 sources with academic or peer-reviewed sources to support your perspectives  .
Format your paper and sources according to APA guidelines.2010 Operating Budget Projection

HCS/577 Version 6

2

University of Phoenix Material

Patton-Fuller Community Hospital
Statement of Revenue and Expense

2009 to 2010 Operating Budget

Complete the Operating Budget. Assume the 2009 projections were realized. Use the 2009 budget and the 2010 budget assumptions to calculate expenses and income for 2010. The revenues have been completed for you.

2009 (Proj)

2010 Budgeted % Change From 2009 Projection

2010 Budget

2010 Operating Budget Assumptions

Revenue

 

Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009—due to the weak economy—will continue into 2010.

Net patient revenue

459,900

3%

473,697

Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts.

Other revenue

3,082

15%

3,544

Marketing’s plan to increase donations by 15%

Total revenue

462,982

3%

477,241

 

2009 (Proj)

2010 Budgeted % Change From 2009 Projection

2010 Budget

2010 Operating Budget Assumptions

Expenses

 

Salaries and benefits

220,752

1%

222,959

Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. This assumption could be affected by a board decision either to raise nursing wages by $1 per hour or to increase the nursing hour ratio.

Supplies

74,584

-3%

72,347

Supplies cost will decrease 3% due to the price deflation and our current over-stock purchased last year.

Physician and professional fees

110,376

3%

113,687

Contracts for fees have a built-in 3% increase.

Utilities

1,200

5%

1,260

Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital’s new heating and cooling systems.

Other

1,840

0%

1,840

No net change in the cost or volume of these items.

Depreciation & amortization (noncash expenses)

36,036

0%

36,036

Some high-cost equipment—air conditioning, telephone system, all patient beds, and headwalls—were replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010.

Interest

3,708

30%

4,820

The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost.

Provision for doubtful accounts

13,797

10%

15,176

The renegotiation of managed care plans has delayed collection and made collections less certain.

Total expenses

462,293

1%

468,125

Total expenses will rise 1%.

2009 (Proj)

2010 Budgeted % Change From 2009 Projection

2010 Budget

2010 Operating Budget Assumptions

Income

 

 

 

 

Operating income

689

33%

916

Operating Income will improve, with the hospital’s loss reducedPFCH Email Record

From: Davis Geach
To: Zachary Hardie
Subject: Increase in nursing staff

Zach:

Caterina has been insisting for some time that we need to hire more
nurses. I’ve arranged for her to give a presentation to the Board next
month to plead her case. I know that following her presentation, they
will want me to advise them of any alternatives.

Caterina’s argument is that the nurses are over-worked and that has a
negative effect on patient care and also leads to the nurses leaving
PFCH for other hospitals. I’m wondering whether giving the nurses a
raise might solve the problems.

Please put together some numbers to compare hiring more nurses versus
giving the nurses a raise.

Davis Geach, President/CEO

Please consider the environment before printing this email.

This message is private and confidential. If you have received
it in error, please contact the sender immediately and delete it

from your system.

PFCH Email Record

From: Zachary Hardie
To: Caterina Hossack
Subject: Re: Increase in nursing staff

Hi Caterina.

Mr. Geach asked me to prepare some information for the Board of
Directors relating to your proposal to add more nurses to the hospital
staff. In order to do this, I need to know the current nursing ratio
and what nursing ratio you are proposing.

Thanks for your help.

Zachary Hardie, Chief Financial Officer

Please consider the environment before printing this email.

This message is private and confidential. If you have received
it in error, please contact the sender immediately and delete it

from your system.

PFCH Email Record

From: Caterina Hossack
To: Zachary Hardie
Subject: Re: Increase in nursing staff

The hospital currently maintains a 5 to 1 nursing ratio (5 patients for
every nurse). I will suggest to the Board of Directors that we move to
a 4 to 1 nursing ratio (4 patients per nurse).

Will the information that you are preparing address patient care,
worker satisfaction and nursing turnover?

Caterina Hossack, Chief Nursing Officer

Please consider the environment before printing this email.

This message is private and confidential. If you have received
it in error, please contact the sender immediately and delete it

from your system.

PATTON – FULLER COMMUNITY HOSPITAL

From: Zachary Hardie, CFO
To: Davis Geach, President/CEO
Re: Increase in nursing staff

Per your request, I have prepared a financial analysis comparing the increasing of the
nursing staff to the granting of an across the board raise to the existing nursing staff.

In order to have a common basis for the comparison, it was necessary to take our existing
salary and benefit costs for the nursing staff and show how they related to the existing
patient/nurse ratio. I have attached as an exhibit a table that presents our curre




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