Budget Report

In: Business and Management

Submitted By jalal
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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 beds are at full discount under every capacity. The CM of 100% capacity was higher than those at 90% and 75% capacity. Not to forget that the 10 beds discount had a fixed CM since the number of patient days and capacity don’t affect the number of beds discounted. As expected the total CM of 50% discount was higher than that at 100% discount. This is due to the zero revenues generated from the fully discounted beds. The next step was to calculate the gross profit when operating at 90% capacity under 50% and 100% discount. 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…...

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