Budgeting, Costing and Casemix - Essay Example

as the NPV is less than zero so it is not advisable for the university to invest in this project. Had the NPV been greater than zero it would make sense to invest in this venture. Question Five Part (a) The state of revenues and expenses for the hospital are as shown in the table below: Revenues Direct Indirect 16 5.5 1.5 5 3.3 3.8 6 2.8 1.6 - - 4.4 - - 2.55 27 11.6 13.85 Projected Profit 1.55 Note: All values in millions of dollars. Therefore the hospital’s projected profit for the 2010 fiscal year is $1.

55 million. Part (b) The allocation of indirect costs to the patient services departments are indicated in the table below along with the agreed cost drivers. Indirect Cost Cost Driver Cost (Millions of Dollars) Financial Services Patient Revenue 1.5 Maintenance Space Utilisation 3.8 Housekeeping Labour Hours 1.6 Administration Salary Dollars 4.4 Personnel Salary Dollars 2.55 The breakup of the indirect costs to each department is described below. Accounting Salaries: divided equally amongst all three departments, therefore cost to each department is 0.

5 million dollars. Maintenance: divided amongst all three departments based on space utilisation (covered area), cost to each department is indicated in the table below: Department Space Utilisation (square meters) Percentage of Total Space Cost (millions of dollars) Routine Care 199,800 66 2.525 Laboratory 39,600 13 0.50 Radiology 61,200 20 0.774 Housekeeping: divided amongst all three departments based on labour hours utilised, cost to each department is indicated in the table below: Department Labour Hours Percentage of Total Cost (millions of dollars) Routine Care 76000 84% 1.

34 Laboratory 6000 7% 0.105 Radiology 9000 10% 0.158 Administration: divided amongst all three departments based on salary dollars utilised, cost to each department is indicated in the table below: Salary Dollars Percentage of Total Cost (millions of dollars) Routine Care 5,709,000 56% 2.47 Laboratory 2,035,000 20% 0.879 Radiology 2,439,000 24% 1.05 Personnel: divided amongst all three departments based on salary dollars utilised, cost to each department is indicated in the table below: Salary Dollars Percentage of Total Cost (millions of dollars) Routine Care 5,709,000 56% 1.

40 Laboratory 2,035,000 20% 0.50 Radiology 2,439,000 24% 0.60 Part (c) The allocation method utilised is well reasoned and makes a lot of sense on paper and on ground. The accounting salaries would in principle get divided amongst all three departments equally. The maintenance costs would get divided amongst all three departments based on the floor space allocated in principle. However it must be taken in mind that the routine care department would have little equipment that would require large maintenance costs but the laboratory and the radiology department would furnish such equipment e.g. centrifuges, x-ray machines and the like.

Therefore using total space occupied alone would not really reflect the state of maintenance expenses alone because routine care would always assume more space while laboratory and radiology would use