Answer Questions





Answer Questions

Question 1

  1. The departmental cost of the three operating sub sectors is $ 1,000,000 for radiology, $ 4,000,000 for laboratory, and $ 1,600,000 fore patient services. This results in a sum of $ 3,000,000.
  2. Several reasonable cost drivers can effectively substitute the existing ones. To start with, in the radiology department, the number of materials used to produce films may be an appropriate cost determinant. This is because the administration will charge the process of film production based on the raw materials used as opposed to films processed. Consequently, the management will be able to account for all costs involved in the proceedings. Likewise, the laboratory department should consider additional cost drivers. For example, evaluating the department’s expenditure based on the patient’s records in the sector will be more efficient. In the patient services sub sector, the management should consider the medical records of the ailing individuals as a cost driver. This is because various illnesses require different forms of treatments in terms of the type and amount of drugs prescribed in addition to supplementary care offered to the patients.  

Question 2

Internal rate of return factor= investment required

                                                Net annual cash inflow

=CF0 +CF1 + CF2 +   CF3 +   CFn    =0

                (1+r)1   (1+r) 2  (1+r) 3   (1+r) n

                                             0= -50000(1+r)0 +7000(1+r)-1 +7000(1+r)-2 +7000(1+r)-3        +7000(1+r)-4 +7000(1+r)-5 +7000(1+r)-6 +7000(1+r)-7

                                                                =    $7000. This is one percent of initial cost of the equipment.

  1. Based on the Internal Rate of Return for the equipment, the manager’s logic is erroneous. This is because he did not consider the detailed aspects of the IRR. The computations illustrate a figure that is lower than the cost of capital. With the cost of capital being $ 50000, the project can only be viable if the Internal Rate of Return exceeds these figures. An IRR of $ 7000 means that the blood analyzer is not in a position to generate substantial income for the health facility with regard to its initial cost.
  2. IRR refers to the reduction fee, which engenders a zero grid present charge for a sequence of prospect cash flows. This financial feature is the rate of proceeds, which is equivalent to the total figures of the current worth of potential cash flows and the end market price of an investment. This computation provides the present worth of the project. The Internal Rate of Return is the reverse of the Net Present Value (NPV). Unlike the NPV, which stipulates the reduced value of several cash flows from a commercial project, IRR provides the breakeven charges of profits by indicating the concession rates that can result in an affirmative current price of the commodity.  

Question 3

  1. Calculating the total cash receipts of a company or department does not include the beginning balance. This is because these charges do not qualify to be part of the expenditure.
  2. In determining the amount that a company needs to have access to, one should first determine the amount it should borrow before computing the ending cash balance. This will help in establishing the deficit in the organization’s monetary capability towards running a certain commercial enterprise.

Question 4

Based on the calculations of the cost mix variance and the cost variance, the medical practitioner brought in a profit of $ 2111 to the medical amenity. This was more than the returns expected in the month of August. The profits from the practice of Dr. Eger exceeded the estimated figures by $ 11 in one month. Based on these computations, it is rational to offer more operating hours to the doctor. This provision will result in increased proceeds to the sanatorium. For this reason, the administration should reschedule operating hours of the medical practitioners in order to increase the output of the human resources.

Question 5

Cash flow= EBIT (earnings before interests and taxes) + Depreciation-taxes

Year 1:105000+ (105000-148553)/5 -30% of initial cost

: 105000+-43553-3150=$ 58297

Year 2:105000+ – (43553*2) -30% of initial cost

: 105000+-(43553*2) -3150=$ 14744

Year 3:105000+-(43553*3) -30% of initial cost

: 105000+-(43553*3) -3150=-$ 28809

Year 4:105000+-(43553*4) -30% of initial cost

: 105000+-(43553*4) -3150=-$ 72362

Year 5:105000+-(43553*5) -30% of initial cost

: 105000+-(43553*5) -3150=-$ 115915

Question 6

The cost budgeting of this medical facility needs to include various activities in its departments and their cost drivers. The cost drivers entail all aspects that influence the closing expenditure of the deed. To start with, the cost drivers of infection control are the medical practitioners in the hospital. This includes doctors, nurses, and other specialists. These personnel will help in prescribing and administering drugs to patients with various illnesses. Moreover, they have the skills to identify and manage contagious infections. Consequently, the spread of diseases will be minimal, an element that will cut down the operational costs of the sanatorium.

In terms of medical supplies and accompanying consumables, doctors and other medical specialists in the clinic should be accountable for ensuring proper allocation of the products. This is possible by imposing fines on the relevant practitioners in case of fraud in the distribution process. The strategy will not only help in promoting integrity but it will also reduce the costs involved in procuring these goods. The authorities should also make use of kilometers as a cost driver of evaluating patient transportation. All drivers of the ambulances in the hospice should present a daily account of the kilometers covered when transporting patients as a way of analyzing the expenditures of the logistics department.

Additionally, the employees in all departments are major cost drivers in the human resources sub sector. This is because their wages and supplementary benefits equal to substantial costs, which the management of the hospital needs to consider in its cost budgeting process. Likewise, the cost driver of security is the total kilometers covered. This entails the mileage involved in patrolling the perimeter of the medical facility.  In view of medical records, the management should evaluate secretaries’ data processors and cleaners. This is because these equipments contain detailed information regarding the patients.

These documents will help the administration in analyzing the costs needed for each patient’s medical care. In the financial administration docket, the wages of all the hospital’s labor force is the chief cost driver. This is because the finance department is in charge of allocating resources needed to pay the workers. Conversely, the expenditures of the pharmacy subdivision depend on the number of clients in the clinic. For this reason, the patients in the facility are equivalent to the department’s cost driver. The relevant authorities have to evaluate the costs of the client’s medical care in order to determine the total expenditures involved in running this health center.

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