Financial Management in Healthcare Assignment: Budgeting and Variance

This assignment delves into the intricacies of financial management within the healthcare sector. It begins with the preparation of monthly budgets under both normal and increased donation scenarios, analyzing the impact on net surplus. The assignment then explores the implications of changes in funding, specifically cuts from major donors like the Bill and Melinda Gates Foundation and the Australian Government. The second part involves creating a flexible budget for a Community Health Centre, comparing revenue and expenses under different fee options, and determining the most favorable option. This is followed by a detailed variance analysis, comparing actual figures with budgeted amounts to identify areas of favorable and unfavorable performance. The analysis highlights the significance of variable costs and revenue fluctuations. The assignment concludes with recommendations for improving the financial performance of the health center, focusing on increasing revenue and managing costs to maximize net surplus.

Running head: FINANCIAL MANAGEMENT IN HEALTHCARE
Financial Management in Healthcare
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL MANAGEMENT IN HEALTHCARE
Table of Contents
Answer to Question 1:.....................................................................................................................2
Requirement a:.............................................................................................................................2
Requirement b:.............................................................................................................................4
Requirement c:.............................................................................................................................6
Answer to Question 2:.....................................................................................................................6
Requirement a:.............................................................................................................................6
Requirement b:...........................................................................................................................10
Requirement c:...........................................................................................................................10
Requirement d:...........................................................................................................................12

2FINANCIAL MANAGEMENT IN HEALTHCARE
Answer to Question 1:
Requirement a:
Preparation of monthly budget:
Particulars Details Normal Scenario 10% Increase
Donations:
Donations received for food A $ 2,925,000 $ 3,217,500
Pledge donation B $ 100,000 $ 100,000
Total donations C=A+B $ 3,025,000 $ 3,317,500
Expenses:
Direct cost D $ 2,700,000 $ 2,970,000
Salaries expense E $ 21,500 $ 21,500
Health and insurance expense F $ 2,875 $ 2,875
Fuel and maintenance
expense G $ 4,600 $ 4,600
Total expenses H=D+E+F+G $ 2,728,975 $ 2,998,975
Net surplus/(deficit) I=C-H $ 296,025 $ 318,525
Workings:
Particulars Details Normal Scenario 10% Increase
Donations:
Number of children A 15,000 16,500
Agreed payment for each day for a B $ 6.50 $ 6.50

3FINANCIAL MANAGEMENT IN HEALTHCARE
child
Agreed payment for a year C=AxBx360 $ 35,100,000 $ 38,610,000
Total donations received for a
month D=C/12 $ 2,925,000 $ 3,217,500
Salaries:
Director of operations per year E $ 60,000 $ 60,000
Director of operations per month F=E/12 $ 5,000 $ 5,000
Security guard per year G $ 42,000 $ 42,000
Security guard per month H=G/12 $ 3,500 $ 3,500
Truck supervisor per year I $ 36,000 $ 36,000
Truck supervisor per month J=I/12 $ 3,000 $ 3,000
Own salary per year K $ 120,000 $ 120,000
Own salary per month L=K/12 $ 10,000 $ 10,000
Total salaries per month M=F+H+J+L $ 21,500 $ 21,500
Health and insurance retirement
benefits N=(F+H+J)*25% $ 2,875 $ 2,875
Fuel and maintenance expense O $ 4,600 $ 4,600
Direct cost:
Food cost per day P $ 6 $ 6
Total food cost for each month Q=(AxPx30) $ 2,700,000 $ 2,970,000
From the above table, it can be said that the revenues are deducted from the expenses and
finally analysed that the due to huge donation there is a surplus in case of normal scenario. In

4FINANCIAL MANAGEMENT IN HEALTHCARE
case of the 10% increase, the donations received have also increased which finally resulted that
the financial health of the budget is viable. There is a surplus increase from the above computed
table as the number of children fed increases due to the donations received in this case is much
more than the expenses incurred.
Requirement b:
Preparation of monthly budget:
Particulars Details Normal Scenario 10% Increase
Donations:
Donations received for food A $ 2,965,625 $ 3,262,188
Pledge donation B $ 100,000 $ 100,000
Total donations C=A+B $ 3,065,625 $ 3,362,188
Expenses:
Direct cost D $ 2,737,500 $ 3,011,250
Salaries expense E $ 21,500 $ 21,500
Health and insurance expense F $ 2,875 $ 2,875
Fuel and maintenance
expense G $ 4,600 $ 4,600
Total expenses H=D+E+F+G $ 2,766,475 $ 3,040,225
Net surplus/(deficit) I=C-H $ 299,150 $ 321,963
Workings:
Particulars Details Normal Scenario 10% Increase

5FINANCIAL MANAGEMENT IN HEALTHCARE
Donations:
Number of children A 15,000 16,500
Agreed payment for each day B $ 6.50 $ 6.50
Agreed payment for a year C=AxBx365 $ 35,587,500 $ 39,146,250
Total donations received for a
month D=C/12 $ 2,965,625 $ 3,262,188
Salaries:
Director of operations per year E $ 60,000 $ 60,000
Director of operations per month F=E/12 $ 5,000 $ 5,000
Security guard per year G $ 42,000 $ 42,000
Security guard per month H=G/12 $ 3,500 $ 3,500
Truck supervisor per year I $ 36,000 $ 36,000
Truck supervisor per month J=I/12 $ 3,000 $ 3,000
Own salary per year K $ 120,000 $ 120,000
Own salary per month L=K/12 $ 10,000 $ 10,000
Total salaries per month M=F+H+J+L $ 21,500 $ 21,500
Health and insurance retirement
benefits N=(F+H+J)*25% $ 2,875 $ 2,875
Fuel and maintenance expense O $ 4,600 $ 4,600
Direct cost:
Food cost per day P $ 6 $ 6
Annual food cost Q=(AxPx365) $ 32,850,000 $ 36,135,000

6FINANCIAL MANAGEMENT IN HEALTHCARE
Food cost for a month R=A/12 $ 2,737,500 $ 3,011,250
From the above computed table, the budget computed in months having 31 days ensures
that there is an increase in the net surplus which further means that due to the effect of 31 days
there is an increase in the net surplus of the budget. In case of normal scenario as well as in case
of the 10% increase, the financial performance of the budget is better due to this effect.
Requirement c:
As the The Bill and Melinda Gates Foundation is cutting back its pledge from $100,000
per month to $50,000 per month it will be difficult to provide financial support to the children in
that case. The Australian Government has cut the cost to $ 5 per child which is not possible for
funding the children’s needs in such a potential cutback in the financial support. The proper
suggestion of the above problem is that at least in order to maintain the balance, it is needed to
finance more than $ 6 hypothetically then the budget will more financially viable in that case.
Answer to Question 2:
Requirement a:
The Community Health Centre
Flexible Budget
For the period ended 2019
Particulars Option 1 Fees Option 2 Fees Existing Fees
Revenues (Charges) $ 165,600 $ 161,600 $ 166,000
Less: Expenses
Variable costs $ 95,400 $ 84,800 $ 106,000

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Salary expense $ 40,000 $ 40,000 $ 40,000
Rent expense $ 10,000 $ 10,000 $ 10,000
Cleaning expense $ 5,000 $ 5,000 $ 5,000
General maintenance
expense $ 10,000 $ 10,000 $ 10,000
Total expenses $ 160,400 $ 149,800 $ 171,000
Net operating
income/(loss) $ 5,200 $ 11,800 -$ 5,000
Workings:
Option 1:-
Particulars Details Child Adult Family Total
Number of consultations A 18,000
Ratio B 50% 20% 30% 100%
Charges per consultation C $ 6 $ 10 $ 14 $ 30
Total charges D=(AxBxC) $ 54,000 $ 36,000 $ 75,600 $ 165,600
Variable cost per consultation E $ 3 $ 4 $ 10 $ 17
Total variable costs F=(AxBxE) $ 27,000 $ 14,400 $ 54,000 $ 95,400
Contribution margin G=D-F $ 27,000 $ 21,600 $ 21,600 $ 70,200
Fixed costs:
Salary H $ 40,000
Rent I $ 10,000

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Cleaning J $ 5,000
General maintenance K $ 10,000
Total fixed costs L=H+I+J+K $ 65,000
Net operating income M=G-F $ 5,200
Option 2:-
Particulars Details Child Adult Family Total
Number of consultations A 16,000
Ratio B 50% 20% 30% 100%
Charges per consultation C $ 7 $ 12 $ 15 $ 34
Total charges D=(AxBxC) $ 56,000 $ 38,400 $ 67,200 $ 161,600
Variable cost per
consultation E $ 3 $ 4 $ 10 $ 17
Total variable costs F=(AxBxE) $ 24,000 $ 12,800 $ 48,000 $ 84,800
Contribution margin G=D-F $ 32,000 $ 25,600 $ 19,200 $ 76,800
Fixed costs:
Salary H $ 40,000
Rent I $ 10,000
Cleaning J $ 5,000
General maintenance K $ 10,000
Total fixed costs
L=H+I+J+
K $ 65,000

9FINANCIAL MANAGEMENT IN HEALTHCARE
Net operating income M=G-F $ 11,800
Existing Fees:-
Particulars Details Child Adult Family Total
Number of consultations A 20,000
Ratio B 50% 20% 30% 100%
Charges per consultation C $ 5 $ 8 $ 12 $ 25
Total charges D=(AxBxC) $ 50,000 $ 32,000 $ 84,000 $ 166,000
Variable cost per
consultation E $ 3 $ 4 $ 10 $ 17
Total variable costs F=(AxBxE) $ 30,000 $ 16,000 $ 60,000 $ 106,000
Contribution margin G=D-F $ 20,000 $ 16,000 $ 24,000 $ 60,000
Fixed costs:
Salary H $ 40,000
Rent I $ 10,000
Cleaning J $ 5,000
General maintenance K $ 10,000
Total fixed costs
L=H+I+J+
K $ 65,000
Net operating income/(loss) M=G-F -$ 5,000

10FINANCIAL MANAGEMENT IN HEALTHCARE
Requirement b:
After consideration of the above tables, Option 2 is deemed to be the most favourable, as
the net operating income to be earned would be maximum in this case.
Requirement c:
Variance Analysis:-
Particulars Actual Option
1
Variance Option 2 Variance Existing
Fees
Variance
Revenues
(Charges)
$
199,50
0
$
165,600
$
33,900
F $
161,600
$
37,900
F $ 166,000 $ 33,500 F
Less:
Expenses
Variable
costs:
Child $
4,500
$
27,000
-$
22,500
U $
24,000
-$ 19,500 U $ 30,000 -$ 25,500 U
Adult $
18,000
$
14,400
$
3,600
F $
12,800
$
5,200
F $ 16,000 $ 2,000 F
Family $
90,000
$
54,000
$
36,000
F $
48,000
$
42,000
F $ 60,000 $ 30,000 F

11FINANCIAL MANAGEMENT IN HEALTHCARE
Total
variable
costs
$
112,50
0
$
95,400
$
17,100
F $
84,800
$
27,700
F $ 106,000 $ 6,500 F
Salary
expense
$
50,000
$
40,000
$
10,000
F $
40,000
$
10,000
F $ 40,000 $ 10,000 F
Rent expense $
8,000
$
10,000
-$
2,000
U $
10,000
-$ 2,000 U $ 10,000 -$ 2,000 U
Cleaning
expense
$
15,000
$
5,000
$
10,000
F $
5,000
$
10,000
F $ 5,000 $ 10,000 F
General
maintenance
expense
$
12,000
$
10,000
$
2,000
F $
10,000
$
2,000
F $ 10,000 $ 2,000 F
Total
expenses
$
197,50
0
$
160,400
$
37,100
F $
149,800
$
47,700
F $ 171,000 $ 26,500 F
Net
operating
income/(loss
)
$
2,000
$
5,200
-$
3,200
F $
11,800
-$
9,800
F -$ 5,000 $ 7,000 U
From the above budget variance analysis for the 2019 actual and budgeted figures, it can
be said that the variable cost related to the child is unfavourable as it is appearing negative in that
case. Rest of the figures are appearing favourable as these computed figures are positive. If it is