+1 862 207 3288 Answer the following questions using the Health Information Department Budget furnished below, specifically the data included in Table 7–3 on page 252:
1. What would be the dollar impact if the 5 percent increase planned for January 1 were reduced to 3.5 percent and postponed until April 1?
2. As an alternate cost-saving strategy, determine the annual savings if all hourly staff were reduced from 40 to 37.5 hours as their standard workweek. Consider the top three staff—director, compliance specialist, and registries coordinator—as salaried and thus unaffected by the workweek change.
3. Determine the total dollar impact if both of the foregoing strategies were implemented together. Remember that the pay increase affects everyone but that the 37.5-hour week affects just hourly staff.
Sample Health Information Department Budget
This budget is based on the following premises:
1. Fiscal year: July 1 through June 30
2. Workweek: 40 hours/week; 2,080 hours/year per FTE
3. Cost of living increase: 5 percent of current base rate (see Table 8–3 for detailed cost of living calculations by position title)
4. Effective date of cost of living increase: January 1
5. Overtime rate: time and a half, based on current base for employee
6. Holiday pay: regular base rate (for employees who work on a scheduled holiday: double time, calculated on current base for each employee)
7. Temporary agency rate: average rate is $13/hr. for clerical worker, no fringe benefits given
8. Sick pay: calculated on each employee’s current base
9. Fringe benefits: 29 percent of total wages and salaries for the department; 29 percent for each individual employee
10. Wage and salary calculations are displayed to show these details:
Factor Example
Current annual base $58,000
July–December of current calendar year—total earnings 29,000
January 1 cost of living increase (5%) 2,900
New annual base effective January 1 60,900
January–June of coming calendar year—total earnings 30,450
Total needed for full 12-month period of the fiscal year 29,000 +30,450 $59,450
Health Information Department Budget
Personnel Costs
Object Code
01 Wages and Salaries $461,724.00
02 Fringe Benefits 133,900.00
03 Vacation Relief Coverage 2,000.00
04 Sign- on Bonuses 10,000,00
Subtotal A $607,624.00
Equipment
Object Code
10 office chairs (6 at $128 each) $768.00
Automatic Paper Shredder 429.00
Stepstools (3 at $59 each) 177.00
Multiterminal Wordprocessing System 74,000.00
Subtotal B $75,374.00
Supplies
Object Code
021 Printed Forms, Stationery, Office $51,999.00 Supplies: Vendors
026 Books 1000.00
027 Journals and Magazine Subscriptions 1,620.00
028 General Stores Supplies—Internal 3,400.00
035 Parking -0-
044 Travel 1,700.00
051 Film Rental -0-
Subtotal C $59,719
Services
Object Code
122 Contractual Temporaries 1,850.00
131 Equipment Rental 2,000.00
134 Outside Contractual Service 5,000.00
136 Equipment Repair Contracts 2,000.00
138 Computer License Agreement 32,000.00
Subtotal D $42,850.00
Cost Transfers
Object Code
150 Telephone $3,840.00
151 Work Orders -0-
152 Postage 360.00
153 Photocopy/Print Shop 200.00
154 TV-VCR Rental -0-
158 Dietary 560.00
Subtotal E $4,960.00
Summary
Personnel Costs 607,624.00
Equipment 75,374.00
Supplies 59,719.00
Services 42,850.00
Cost Transfers 4,960.00
Total $790,527.00
Introduce the potential department manager to the concept of the budget, the essential role of the budget in the operation of a department, and the ways in which a department’s operating results are compared with budget in the ongoing control of expenditures.
Students should leave this chapter understanding what a budget is and what its role is in the operation of a department, as well as being conversant with the steps in the budget cycle and most of the terms commonly employed in departmental budgeting.
Objectives:
Chapter 7- Budgeting: Controlling the Ultimate Resource
8
Relate the dynamics of the budget approval process to the development of the budget
Assignment
8.1
Introduce the budget as a special-purpose financial plan that is an essential part of the department manager’s planning function
Assignment
8.2
Identify the various types of budgets employed and the commonly encountered budget periods
Assignment
8.3
Differentiate between traditional budgeting and zero based budgeting approaches
Assignment
8.4
Enumerate the steps in the budget cycle
Assignment
8.5
Enumerate the requirements of successful budgeting
Assignment
Key Terms/Concepts
•Financial plan – in addition to the several ways the chapter material refers to the budget, the budget is also a plan, a financial plan expressed in terms of projected expenditures. As such, budget preparation is planning of a specific kind, and is a form of planning with which the department manager must become intimately familiar.
•Statistical budget – all budget planning begins with the best reasonable estimate of how much business the department will be doing in the coming period (usually a year). It is best kept in mind that, as in all planning, when looking ahead to a time period not yet here, we are dealing with estimates and projections only. Therefore, despite the appearance of the budget as plan involving hard-dollar numbers, the budget remains a projection of possible results based on estimates, projections, and best-guesses.
•Participative budgeting – organizations vary in the extent to which individual managers may be involved in budgeting. Some top managements unfortunately cling to the practice of budgeting for the departments and handing down budgets as requirements in which the managers have no voice. However, involving individual managers in budget preparation, although frequently frustrating and time-consuming for the managers, invariably results in a budget that managers are more likely to understand, accept, and support.
•Uniform code of accounts (or, uniform chart of accounts) – The standard classification of expenditures and other transactions established by the organization; it contains master codes and subdivisions to provide a framework for identifying costs.
•Cost center – a department, group, activity or group of activities for which costs are identified and collected.
•Responsibility center — a unit of the organization headed by an individual who has authority over and who accepts responsibility for that unit.
•Incremental budgeting – budgeting process in which the financial database of the past is increased by some given percentage; that is, for example, the previous year’s budget or operating results are increased by some percentage to apply to the new year.
•Zero-based budgeting – known also as the planning-programming-budgeting system (PPBS), in which dollar allocations are not the basis of projection but rather budgeting begins with a clean slate uninfluenced by past activity.
•Budget variances – the differences between budgeted amounts and actual expenditures, indicating results over or under budget.
