Question

Practice Exercise 16–I: Budgeting

Budget assumptions for this exercise include both inpatient and outpatient revenue and expense. Assumptions are as follows:
As to the initial budget:
The budget anticipated 30,000 inpatient days this year at an average of $650 revenue per day. ( the budgeted revenue will be $650*30,000)
Inpatient expenses were budgeted at $600 per patient day. (Budgeted Expenses will be 30,000 *$600)
The budget anticipated 10,000 outpatient visits this year at an average of $400 revenue per visit. (revenue per visit x number of visits)
Outpatient expenses were budgeted at $380 per visit. (Budgeted expenses for outpatient will be $380 x number of OP visits)
As to the actual results:
Assume that only 27,000, or 90%, of the inpatient days are going to actually be achieved for the year.
Revenue is going to be less than the budgeted due to a lower actual visits
The average revenue of $650 per day will be achieved for these 270,000 inpatient days.(typo in the book as this should be 27,000)
The outpatient visits will actually amount to 110%, or 11,000 for the year.
Assume higher OP visits x $400
The average revenue of $400 per visit will be achieved for these 11,000 visits.
Further assume that, due to the heroic efforts of the Chief Financial Officer, the actual inpatient expenses will amount to $11,600,000 and the actual outpatient expenses will amount to $4,000,000.
Total expenses for IP and OP visits will be the sum of the two
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Answer 1

Based on the budget assumptions and actual results provided, the following is the calculation of the actual revenue, expenses, and total expenses for inpatient and outpatient visits:

Actual revenue from inpatient visits: 27,000 x $650 = $17,550,000
Actual revenue from outpatient visits: 11,000 x $400 = $4,400,000
Total actual revenue: $17,550,000 + $4,400,000 = $21,950,000

Actual expenses for inpatient visits: $11,600,000
Actual expenses for outpatient visits: $4,000,000
Total actual expenses: $11,600,000 + $4,000,000 = $15,600,000

Therefore, the total expenses for inpatient and outpatient visits will be $15,600,000.