Hospital Budgets, Essay Example

Please define and explain the following type of expenses and give an example of a business activity from your profession that may change the amount of variable expenses with each definition.

Fixed expenses are easy to track and trend but variable and mixed expenses are the really tough ones to facilitate into a budget because they are so fluid. Fixed expenses do not fluctuate with changes in sales volume or production whereas variable expenses respond directly to activity such as level or volume including salaries, inventory, packaging and supplies.  An example of a business activity that changes in the medical field is the emergency room expenses. Patients come and go regularly but sporadically therefore there are no fixed amounts aside from the physicians and nurses’ salaries. A hospital can estimate the supplies, but there is no true way to determine how much will actually be spent per month in a trauma care facility because emergencies change at the flip of a coin.

Please identify if you would assign each of the following accounts fixed, variable, or mixed and why.
Labor positions: (Please assign each position a fixed, variable or mixed account status)
RN bedside-Fixed expense because the nurse is a salaried non-exempt employee that has to be at the hospital to tend to a number of patients. This does not change unless someone calls in sick or the normal employee count changes.

Respiratory therapist-Fixed Expense because there is one on salary at the hospital at all times. Charge Nurse-Variable Expense because they are called to duty for over time, vacation leaves and in times of illness of other nurses. Nurse Manager-Fixed Expense because the manager is normally a salaried position. Revenue: Mixed Account Status because these changes depending on how many patients are sick and how many hospital services are used versus how much overhead the hospital uses per month. Rent: Fixed Expense and can be Variable after lease expires because there is a certain amount set aside unless the lease expires. This can be fixed if the hospital has no mortgage or rent and/or if the nurse/medical professional owns the home. Supplies: Variable Expense because this changes per patient/surgery/procedure.

Why is it important to know and understand each classification during the budget process?

“Fixed expenses are those expenses that do not change within a certain period provided that the company is operating within the relevant range.” (“Fixed and Variable Expenses”). Example, rent expense. Variable expenses are those expenses that changes as the level of economic activity changes. Example cost of goods sold. It is important to know the classification to estimate the monthly budget. Those fixed expenses can be classified as stable expenses but the variable expenses have no limit and should be budgeted to the high limit depending on previous months and/or years. That is what a proper budget/trend is all about. A trend is normally set on the variable and mixed expenses because the set or fixed expenses obviously do not change, hence do not affect the anticipated budget. “The key is to classify essential and non-essential expenses so that one can differentiate between ‘needs and wants’.” (“Creating a Budget: Classifying Expenses”).  With this said, this differentiation is the key to a successful and healthy maintained budget.

References

Creating a Budget: Classifying Expenses Retrieved June 21, 2010 from, http://www.mynewchoice.com/2006/09/06/create-budget-classify-expenses/

Fixed and Variable Expenses Retrieved June 21, 2010 from, http://www.referenceforbusiness.com/small/Eq-Inc/Fixed-and-Variable-Expenses.html