Question

Children’s Hospital of the King’s Daughters Health System in Norfolk, Virginia introduced a new budgeting method that allowed the hospital’s annual plan to be updated for changes in operating plans. For example, if the budget was based on 400 patient days (number of patients × number of days in the hospital) and the actual count rose to 450 patient days, the variable costs of staffing, lab work, and medication costs could be adjusted to reflect this change. The budget manager stated, “I work with hospital directors to turn data into meaningful information and effect change before the month ends.”

Please provide an original response of at least 400 word response

1. What budget methods are being used under the new approach?
2. Why are these methods superior to the former approaches?
3. Discuss the budget methods used in your current/future company.

Answer 1

a) The budget method that is used under the new approach is a flexible budget. A budget is prepared to determine an organizations future course of actions. In the new approach the budget is adjusted with the change in the activity base of patients days. In the current case the patient days are determined by multiplying number of patient with number of days in the hospital.

b) Flexible budgets are more superior to the former approach as individuals can get discouraged or demotivated if in case the budget is too tight or if it is unachievable. As flexible budget is flexible in nature it provides flexibility in budget for varying rate of activities. Under flexible budget the change or fluctuations in the activity level is taken into consideration.

c) The budget method used in future company/ current company is activity based method. Activity based budget method is a method under which activities are analyzed, researched and recorded. Under this budgets are prepared after considering overheads cost. It does not consider past year budget, Infact to prepare budget this method considers overhead cost. It is helpful i bringing efficiency in the activity of an organization.