Question

Differentiate between the operating budget and capital budget in a well-managed health care organization. What types of expenses are included in each?

Answer 1

Operating Budget:

- Managerial accounting is called Operating budget.

- It includes sales, production (direct labor, direct material, and manufacturing overhead), selling and administration expense, income statement budget, cash budget and balance budget.

- Costs in the flexible budget are compared to actual costs to evaluate performance.

Capital Budget:

- The long term planning for making and financing investments that affect financial results over a period longer than one year.

* Difference between Operating and Capital budget:

- Operating budgets pay for day to day expenses. Capital budget pays fo major capital, or investment, spending.

Types of Expenses included are:

The operating budget includes a personnel budget, which takes into account productive and nonproductive paid work hours. Education hours are covered under nonproductive paid work hours in the operating budget.

Items that have a useful life of longer than a year, which is likely with the pumps, and that have a cost that usually exceeds $300 to $1000 (specific amount is set by the organization) are considered capital items. Operating budget items include what is used on a day-to-day basis, such as staffing.