QUESTION 1 - CONCEPTUAL QUESTION
Legislative bodies typically adopt one of the following types of budgeting models:
(1A) Line Item Budgeting;
(1B) Program Budgeting, and
(1C) Zero-Base Budgeting.
Using whatever sources you choose (but making sure that you cite the sources in full), describe these alternative models and their PROS and CONS in as much detail as you can.
(1A) Line Item Budgeting;
(1B) Program Budgeting
(1C) Zero-Base Budgeting.
QUESTION II - COMPUTATIONAL CONCEPTS
The following budget figures are provided by the Wilburtown Health Clinic, a unit funded through legislative appropriations from the State of New Jersey, and required to follow a line-item budgeting approach. This outpatient healthcare facility has a maximum daily capacity of 100 full-day equivalent (FDE) patients per 8-hour shift. Assume that patients overflow from one shift to the next shift, with only the first shift available for low volumes, and extra shifts added only when necessary.
NOTE: (1) FDE = total number of patients treated equivalent to full-day treatment, e.g., average of 800 patients treated for 1 hour each = 100 FDE patients.
(2) Total patient days per year = Average daily FDE patients (for all 3 shifts) x Number of days clinic is open per year .
BUDGET INFORMATION FOR 20xx
|
Line Item
|
Cost Behavior
|
Budgeted Costs
|
|
Nurses
|
Step function
First 3 nurses can provide service for up to 6,000 patient-days per year.
Each subsequent nurse hired can provide service for 2,000 patient-days per year. No fractional or part-time nurses are employed.
|
Average annual salary (per nurse) of $65,000 for first three nurses. (This includes fringe benefits).
Subsequent nurses hired will be paid annual salaries of $60,000 each (including fringe benefits).
|
|
Medical supplies
|
Variable cost
|
$5 per patient-day up to 5,000 annual patient-days; this decreases to $4 per patient-day thereafter
|
|
Staff Physicians (full-time)
|
Fixed
There are 3 physicians on staff for the first shift, and another three for the second shift. The third shift uses only physicians on call.
|
$300,000 per year for each physician (including fringe benefits).
|
|
Physicians on call
|
Variable (used during Shift 3 for only the actual patient-days serviced)
|
The billing rate is $100 per patient-day during Shift 3.
|
|
Maintenance of facilities
|
Semi-variable
|
$100,000 fixed; $2,000 per day for each shift.
|
|
Depreciation
|
Fixed
|
$2 million per year
|
|
Other expenses
|
Semi-variable
|
$500,000 per year plus $10 per patient-day
|
REQUIRED:
Question II (A) -
Using the template below, prepare an annual line-item budget for Wilburtown Health Clinic. You may use the EXCEL template provided if you wish, but this is optional.
|
Cost
|
60 patients per day (average)
14,400 patient-days per year
|
130 patients per day (average)
?
|
250 patients per day (average)
?
|
|
Medical supplies
|
|
|
|
|
Physicians on Call
|
|
|
|
|
Maintenance of Facilities
|
|
|
|
|
Nurses
|
|
|
|
|
Other expenses
|
|
|
|
|
Staff Physicians (full-time)
|
|
|
|
|
Depreciation
|
|
|
|
|
TOTAL BUDGETED EXPENSES
|
|
|
|
Question II (B) -
(i) Using the high-low method, estimate the cost function for Wilburtown Health Clinic.
(ii) Using the cost function you estimated in (i) above, forecast the total budgeted costs to be expected if Wilburtown Health Clinic is operating at full capacity of 72,000 patient days per year.
QUESTION III - OMEGA RESEARCH INSTITUTE
PART III (A)
Prepare a list of the problems associated with the Ormico project by classifying them into the following categories.
(Note that the classifications don't matter as much as correctly identifying the problems. You will not be penalized for misclassification errors).
A1. Strategy Formulation (kinds of projects suitable, time horizon, etc.)
A2. Management Control system (e.g, performance measurement systems, motivation systems, conflict management, client management, lines of responsibility, etc.)
A3. Task/Performance Control (communication procedures with client, internal communication processes, output/outcome measurement systems, etc.)
PART III (B) -
What changes should Dr. Simmons recommend to avoid similar problems in the future? Your recommendations should tie in to the problems you identified in Part III (A.)
B1. Strategy Formulation
B2. Management Control system
B3. Task/Performance Control