NURS6211 Walden University Week 4 Net Revenue and Budgeting Paper

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Health Medical

NURS6211

Walden University

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Application Assignment Net Revenue and Budgeting

You will begin this assignment in Week 4 and it will be due by Day 7 of Week 5.

No one can predict the future, but accountants and financial managers must try and do exactly that! By examining net revenue, costs, and cash flow, you can get a clearer picture of what to expect in your organization’s (or one with which you are familiar) fiscal future. Using these metrics to look forward will enable you to more effectively plan budgets that accomplish organizational goals.

When developing a budget, what variables do you have to take into account? In health care organizations, two of the largest groups of factors that you must consider are first, volume, and second, staffing and supply. The number of patients and tests performed each day, as well as employees and their pay rates are all crucial pieces of information when determining a budget.

In this Assignment, you address five scenarios: net revenue, fixed and variable costs, cash flow, volume budget, and staffing and supplies budget.

Note: For those Assignments in this course that require you to perform calculations you must:
  • Use the Excel spreadsheet template for the Week 5 assignment.
  • Show all your calculations and formulas in the spreadsheet.
  • Answer any questions included with the problems (as text in the Excel spreadsheet).

A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet.

For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials.

To prepare:

  • Use the Week 5 Application Assignment Template, provided in this week’s Learning Resources, to complete this assignment. Carefully examine the information in each of the scenarios and provide the necessary calculations. Using this information will help you answer the questions.
Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet.

Scenario 1: Net Revenue Scenario

Your clinic provides four kinds of services:

  • Comprehensive initial medical consultation is priced at $250
  • Established patient limited visit is priced at $75
  • Established patient intermediate visit is priced at $125
  • Established patient comprehensive visit is priced at $250

Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months?

Scenario 2: Fixed/Variable Cost Scenario

You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).

Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of $165 per procedure (with a 100% collection rate). Your board has mandated that you make $5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer?

Hint: Calculate the variable cost.

Scenario 3: Cash Flow Scenario

Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows:

Question: If you have $380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.

Scenario 4: Volume Budget Scenario

You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits.

Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at $20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for?

Example on Template: 2 North Bldg calculated. You will need to complete 2 South Bldg, ICU and OPD

Scenario 5: Staffing and Supply Budget Scenario

Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%.

In reviewing performance to date, you note that in January, you purchased $150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned $2,800 of office supplies for credit from the vendor in Febuary. These supplies were purchased in a previous fiscal year.

You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 FTEs.

A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at $16.00 per hour.

This Assignment will be due by Day 7 of Week 5. Be sure and include all of your calculations.

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Name First Name Last name Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months? Your clinic provides four kinds of services: • Comprehensive initial medical consultation is priced at $250 • Established patient limited visit is priced at $75 • Established patient intermediate visit is priced at $125 • Established patient comprehensive visit is priced at $250 Net RevenueScenario Type of Service Comprehensive initial medical consultant Established patient limited visit Established patient intermediate visit Established patient comprehensive visit Total Gross Revenue Average Collection Rate Total Net Revenue Price Each Annual Volume Gross Revenue per year Assignment: Name: Fixed/Variable Cost Scenario You have performed a cost analysis of your health service organization and have determined the following: based o latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 proced You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are (marked with a V). Supply Items F/V Supply item 1 Supply item 2 Supply item 3 Supply item 4 Supply item 5 Supply item 6 Supply item 7 Supply item 8 Supply item 9 F F F F F F V V V $ Annual Cost of Operations 1 Question: An insurance company that is considering directing its 1,000 units per year of procedure business to you organization has approached you. Your board has mandated that you make $5 of profit from each of the procedure obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you w willing to accept from this payer? Hint: Calculate the variable cost. Fixed/Variable Cost Scenario Supply item 1 Supply item 2 Supply item 3 Supply item 4 Supply item 5 Supply item 6 Supply item 7 Supply item 8 Supply item 9 Total Cost Annual Volume Variable Cost per Unit Profit Target Variable Fixed Total (lowest possible price) have determined the following: based on the 00 with annual volume of 10,000 procedures. hose marked with an F) while others are variable Average Annual Amount $220,000 180,000 75,000 50,000 25,000 50,000 500,000 300,000 200,000 1,600,000 ts per year of procedure business to your e $5 of profit from each of the procedures. You , what is the lowest possible price you would be Total Cash Flow Scenario Month July, 20X2 August September October November December January, 20X3 February March April May June Question: If you have $380,000 of cash on hand January 1, 20X2, how much cash will you have at the en Month January 20X2 February March April May June July * August September October ** November December January 20X3 February March April May June 20X3 Total Cash on Hand June 20X3 *Open for Business ** 90 Billing Cycle Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received. Your business volume is projected to be as follows: Volume 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 ave $380,000 of cash on hand January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 1 January 20X2 Opening Cash Balance = $380,000 Cash Balance $380,000.00 Billing $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 e end of June 20X3? Assume a 100% collection rate. Monthly Expense Monthly Billing Monthly Collections Ending Cash Balance You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits. RAW DATA Patient Days/Visits Budget Chemistry Hematology Bacteriology Cost per test Tests per FTE 2 North Bldg 2 South Bldg 19800 3.6 1.2 3.2 $20.00 200,000 ICU 21900 4.3 2.1 5.6 8760 2.9 1.4 3.6 Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at $20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for? TEST COUNT BUDGET Chemistry Hematology Bacteriology Total 2 North Bldg 2 South Bldg ICU GROSS REVENUE BUDGET Chemistry Hematology Bacteriology Total 2 North Bldg 2 South Bldg ICU Staffing FTE Budget Chemistry Hematology Bacteriology Total Preliminary Final OPD 200000 4 3.5 5.5 OPD Total OPD Total Staffing and Supply Budget Scenario Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your e year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure fixed, those marked (V) are considered variable. Inflation is planned at 4%. Expense Item Amount Billing Supplies (F) IV Solutions (V) Med/Surg Supplies (V) $24,400.00 $288,108.00 $411,480.00 $18,400.00 $42,650.00 $570,240.00 Miscellaneous (F) Office Supplies (F) Stock Drugs (V) In reviewing performance to date, you note that in January, you purchased $150,000 of D5W fluid replacement charged addition, you returned $2,800 of office supplies for credit from the vendor in February. These supplies were purchased Expense Account Orig. Base Period Amt Billing Supplies (F) IV Solutions (V) Med/Surg Supplies (V) Misc. (F) Office Supplies (F) Stock Drugs (V) Total Adjustments -$ 112,500.00 $ 2,800.00 $ Adjusted Base Period Amt (109,700.00) You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 F current staff with FTE values and hourly rates of pay as of January 1, 20X8: Position/Incumbent Hardy Rosetti Chang Martinez Jones FTE Value Pay Rate 1.0 0.5 0.5 1.0 0.5 $16.30 $16.80 $16.50 $16.00 $16.75 A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, alw whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year Incumbent Hardy Rosetti Chang Martinez Jones Vacant Total FTE Value Pay Rate: Jan 1 20X8 Base Budget Amt ginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget , 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered 0 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In ary. These supplies were purchased in a previous fiscal year. Base Period Units Amount/Unit (Vol or Time) Budget Period UnitsBase Amt. Budget Inflation Rate 3240 3240 3 3 3240 4% 4% 4% 4% 4% 4% 24820 24820 12 12 24820 rmined that staff needs are for 6.5 FTEs. The following are the Total: $ - nt. In making your calculations, always round to the nearest ew staff begins the new fiscal year at $16.00 per hour. Salary Increase% Months of Increase Increase Amt Salary Budget Inflation Amt Final Budget Amt NURS 6211: Finance and Economics in Healthcare Delivery Week 5, Program BF Budget Forms WILLIAM WARD: When we look at budgeting, we have to look at a number of different elements— volume, revenue, staffing, salaries and supplies. As we calculate a volume budget, we can look at a trend in volume. Here we have a series of years with their associated volume of business. We see the volume in the middle column and we see the percent of growth each year in the far right column. And what we're seeing is that we're growing by around 4½ percent a year. Our question is how much volume will we have in Year 7? What we see here is that we're going to continue to grow in our estimation by about 4½ percent. It says that for fiscal Year 7, we will expect to do just under 30,000 units of volume. And so that number is going to drive our revenue estimation, our staffing plan, our salaries, and supplies. You would calculate the revenue budget by taking the kinds of services that are provided and multiplying the volume times the price to get the gross revenue. At the bottom, we convert from gross revenue of $826,000 to net revenue based on our calculated collection rate of $607,000. The next thing we need to do is figure out a staffing plan. In this case, we're going to do a 150,000 procedures and the amount of time needed to do that is a half an hour of manpower time for each one of those procedures. That said, it means that we need 75,000 man hours to be devoted to doing procedure work. If our workers are productive onsite, on scene doing work 85 percent of the time, it says that we actually need 42.42. We need 42 ½ FTEs to get the job done. Once we have a staffing budget established, then we can begin to develop a salaries budget. What we're going to do is look at Shiloh's name on the first line and move across the page and see how we calculate the salary budget. This is a full-time worker, they work 2,080 hours a year or they're paid for 2,080 hours a year, 40 hours a week for 52 weeks. The current rate of pay is $21.80 but on June 1st before the new fiscal year starts, Shiloh is going to get a 6 percent raise. So, what we're going to do is take 6 percent times the base salary but we only want that for one month. So we're going to multiply that by one and then divide by 12 months. That gives us the amount of the raise that goes to Shiloh in the © 2012 Laureate Education, Inc. 1 budget year. And then the grand total is the total amount for Shiloh for this budget year that's upcoming. If we switch over to take a look at the supply side, the last piece that we need to get into, what we have here is a listing again of all of our supply items in terms of office supplies, medical supplies, stock drugs, and the like. We've spent $4,500 year to date on office supplies. We've spent $4,500 in 5 months, that's $900 each month. If we're going to have 12 months in the fiscal year that says that we're going to need $10,800 in that budget. Let's go up to the top again and look at medical supplies. So far this year, we've taken care of 7,650 units of volume with that $153,000 of medical supplies. That's $20 each and so for the coming year, we're going to multiply that $20 times the amount of volume we anticipate for the coming budget year. In this case, 21,900 units. And that says that we will need a basic budget of $438,000 before considering inflation. If we then add 5 percent to that, it says we need another $21,000 worth of inflation and a grand total of $459,000, just shy of $460,000 for medical supplies. We come to the bottom line total on the far right, it says that we need $524,000 worth of supplies to care for the volume and the time that we're going to be dealing with. Finally, we would put together something that looks like this, a little quick budget summary that talks about how much volume, what are net revenue is going to be, what our staff FTEs want to be, and then salaries, supplies, our total for expenses. So, in this one little summary statement, I've got everything. I start with the volume and I end with the profit. © 2012 Laureate Education, Inc. 2
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Explanation & Answer

please find the attached file. i look forward to working with you again. good bye

Name

First Name

Last name

Question: The profile of your patients is such that the
average collection rate is 75%. Assuming you have 100
visits of each type each month, what amount of new revenue
will you generate in the next 12 months?
$210,000

Your clinic provides four kinds of services:

Comprehensive initial medical consultation is priced at $250

Established patient limited visit is priced at $75

Established patient intermediate visit is priced at $125

Established patient comprehensive visit is priced at $250

Net RevenueScenario
Type of Service
Comprehensive initial medical consultant

Annual Volume

Price Each
$250

1200

$75

1200

Established patient intermediate visit

$125

1200

Established patient comprehensive visit

$250

1200

Established patient limited visit

Total Gross Revenue
Average Collection Rate
Total Net Revenue

Gross Revenue per year
$300,000
$90,000
$150,000
$300,000
$840,000
$630,000
$210,000

Assignment:
Name:
Fixed/Variable Cost Scenario
You have performed a cost analysis of your health service organization and have determined the following: based o
latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 proced
You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are
(marked with a V).

Supply Items

F/V

Supply item 1
Supply item 2
Supply item 3
Supply item 4
Supply item 5
Supply item 6
Supply item 7
Supply item 8
Supply item 9

F
F
F
F
F
F
V
V
V

$

Annual Cost of Operations

1

Question: An insurance company that is considering directing its 1,000 units per year of procedure business to you
organization has approached you. Your board has mandated that you make $5 of profit from each of the procedure
obviously want the highest possible price, but as you enter the negotiations, what is the...


Anonymous
I was struggling with this subject, and this helped me a ton!

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