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# Budget Report

516 words - 3 pages

Budget Report
We were offered the following data to complete a budget for a hospital. The data contained the following: The hospital had a total of 35 beds of which 10 beds were on a discount, either 50 % discount or full discount. Three different capacities were given to us, 100%, 90% and 75%. The total number of patient days at 100% capacity is 12775 days, 11497.5 days at 90% capacity and 9581.25 days at 75% capacity. The hospital’s fixed costs amounted to \$10,100 per month and the variable costs were \$179.45 per day.
The first step in the preparation of the budget was finding the contribution margin (CM) for the hospital under the assumptions that 10 beds are at 50% discount and under every capacity, and that 10 ...view middle of the document...

The gross profit of 50% discount came out to be higher and almost double the gross profit of that at 100% discount. The effect of the 100% discount on the CM mentioned in the previous paragraph is carried forward to the gross profit causing a substantial decrease in the hospital’s gross profit.
The last step was calculating the fee/patient under the assumption that the hospital borrows one million dollars with an interest rate of 12%. This loan is to be repaid in equal installments over 10 years. After calculating the present value of the annuities of the loan, the sum of the fixed and variable costs with the annuity at its present value, represented the total cost to be covered by the hospital in order to break-even. Knowing the total patient days and the number of beds discounted, the fee/patient at 100% discount and at 50% discount was calculated in order to break even. The different capacities showed us different fee/patient as well.
It is concluded that the lower the capacity the hospital is operating at, the higher the fees that are charged to patients. Not to forget that also when the discount is higher the fee/patient gets. This is due to fixed costs and to the variable costs that don’t change with the number of units, and the discounted beds are fixed at all capacities. This implies that the 100% capacity and the 50% discounted beds requires the lowest fee/patient and the 75% capacity at 100% discount requires the highest fee/patient. These decisions should be took based on the market around the hospital and how much target income the hospital intends to generate.
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