Assignment Exercise : Transactions Outside the Operating Budget

Metropolis Health System (MHS) has received a wellness grant from the charitable arm of an area electronics company. The grant will run for 24 months, beginning at the first of the next fiscal year. Two therapists and two registered nurses will each be spending half of their time working on the wellness grant. All four individuals are full-time employees of MHS. The electronics company has only recently begun to operate the charitable organization that awarded the grant. While they have gained all the legal approvals necessary, they have not yet provided the manuals and instructions for grant transactions that MHS usually receives when grants are awarded. Consequently, guidance about separate accounting is not yet forthcoming from the grantor.

Required

How would you handle this issue on the MHS operating budget for next year?

Exhibit Checklist for Building a Budget

1.What is the proposed volume for the new budget period?

2.What is the appropriate inflow (revenues) and outflow (cost of services delivered) relationship?

3.What will the appropriate dollar cost be?(Note: this question requires a series of assumptions about the nature of the operation for the new budget period.)

3a.Forecast service-related workload.

3b.Forecast non-service-related workload.

3c.Forecast special project workload if applicable.

3d.Coordinate assumptions for proportionate share of interdepartmental projects.

4.Will additional resources be available?

5.Will this budget accomplish the appropriate managerial objectives for the organization?

Exhibit Checklist for Reviewing a Budget

1.Is this budget static (not adjusted for volume) or flexible (adjusted for volume during the year)?

2.Are the figures designated as fixed or variable?

3.Is the budget for a defined unit of authority?

4.Are the line items within the budget all expenses (and revenues, if applicable) that are controllable by the manager?

5.Is the format of the budget comparable with that of previous periods so that several reports over time can be compared if so desired?

6.Are actual and budget for the same period?

7.Are the figures annualized?

8.Test one line-item calculation. Is the math for the dollar difference computed correctly? Is the percentage properly computed based on a percentage of the budget figure?