Hospital Budgeting Issues - Essay Example

For example, if supplies usage is less than the budgeted the variation is favorable because it results to material savings. On the other hand, a variance is said to be unfavourable if the actual result is more than the budgeted result in the wrong direction (adverse). For example, if the total wage rate exceeds the budgeted wage rate the variance is termed unfavourable since more cash outlay is involved than the planned cost (Drury, 2007).

Variance can be used to analyze the performance of different firms in the same industry such as hospitals among themselves through a standard rate. Where it can either be represented in percentage or discrete values.

In the health sector, variance is used to measure the extent of efficiency in utilizing health facilities. It also reveals areas that need further investigation depending on the level of deviation from the expected and the relevant range that is acceptable in the health sector. Variations within the accepted range imply that projects or operations are running as expected.

It is the manager's concern that the departmental salaries were higher than expected in this scenario. The possible causes of salary variance include an increase in wage rate which would have resulted in adverse salary variance. Also, a hike in wage rate might have resulted from hiring extra health workers due to unexpected epidemics within a given season. If for the past period, the hospital has experienced a high number of patients beyond the planned capacity thus calling for the need to work overtime hours and recruit more health workers. From the general principles of employment terms overtime hours are paid at a premium. This greatly inflated our salary expedition beyond the departmental control.

Another possible cause of inflated wage costs is the presence of idle time payment. The total idle time in the current period might have doubled as compared to the previous financial year. This will negatively influence our total salaries expenditure thus creating a large deviation from the budgeted labour cost. The department also may have suffered from the effect of government regulation raising the basic wage rate in health sectors. To comply with such rules the hospital might have been forced to raise its basic wage rate to all staff thus increasing the total wage cost against the budgeted wage cost (Drury, 2007).

The second variance of concern was the supplies, which were adverse to the budgeted cost. Supplies variance rises as a result of the total deviation of the actual result from the budgeted material cost. Supplies variance could have resulted from materials such as drug evaporation resulting in a reduction in stock thus failing to cure the expected number of patients. This will imply that the cost for the evaporated drugs was the total variation from the budgeted.

Another cause for this variation could have resulted from an increase in material price. Following the changes in the exchange rate, the material price rose from the standard cost thus making it expensive to acquire the required supplies (Drury, 2007). This price change resulted in a change in the total material cost thus recording a negative material variation. In addition, the material usage on patients might have increased by almost double thus reducing the total no of patients from the planned allocation. Supplies variation may also emerge from the large number of students who were enrolled in our health facility for an internship they drastically misused materials by administering the wrong dosage or spillage due to careless mistakes. Some of the supplies might have been mixed in unplanned proportions resulting in over usage in some supplies thus causing shortage in some and excess in others. This error in usage resulted in material mix variance which negatively affected our budget.

Some of the information that was used to make budgets might not have been adjusted to reflect the real situations. For instance, the standard price did not incorporate the element of inflation or the fluctuation in the exchange rate. The plans did not also include expected calamities such as epidemics and this was seen as the major cause of variations in the actual outcomes and the budgeted outcomes (Drury, 2007).