Question

Refer to Sombertown Hospital’s financial statements below for calculating the ratios requested in Questions 1-5.

Sombertown Hospital

Statement of Operations

For the Year Ended December 31, 2018

Revenues, Gains, Other Support

Net patient service revenue     $      4,500,000

Other revenue                                     600,000

      Total Revenue                           5,100,000

Expenses

Nursing Services                             3,600,000

Administrative Services                     600,000

Depreciation                                       300,000

Other Expenses                                  150,000

      Total Expenses                          4,650,000

Operating Income                              450,000

Investment Income                             150,000

Excess of revenues over expenses     600,000

Increase in Unrestricted Net Assets$ 600,000

Sombertown Hospital

Balance Sheet

As of December 31, 2018 (2017 omitted)

Assets

Current Assets

Cash and cash equivalents      $         150,000

Net patient receivables                    1,050,000

      Total Current Assets                 1,200,000

Properties and Equipment

Gross properties and equipment   $ 2,700,000

Less accumulated depreciation       1,425,000

      Net Properties and Equipment 1,275,000

      Total Assets                      $      2,475,000

Liabilities and Net Assets

Current Liabilities

Accounts Payable                               600,000

Salaries Payable                                 150,000

      Total Current Liabilities               750,000

Notes Payable                                    600,000

Unrestricted Net Assets                  1,125,000

Total Liabilities and Net Assets$ 2,475,000

Question # 1

What is Megatropolis Hospital’s operating margin?

Question # 2

What is Megatropolis Hospital’s days in accounts receivable?

Question # 3

What is Megatropolis Hospital’s long-term debt to net assets ratio?

Question # 4

What is Megatropolis Hospital’s age of plant?

Question # 5

What is Megatropolis Hospital’s days of cash on hand?

Question # 6

What are the four phases of management control?

Question # 7

Management has studied work patterns in the housekeeping department and estimates the number of hours to be worked as follows. Hours worked = (1,600 hours per month) + (0.50 × RVUs). For the coming month, management expects RVUs to be 6,000. What should budgeted labor for the month be?

Question # 8

Last year the price for thermometer covers in a pediatrician’s office was $.06 each. This year, the covers cost $.08 each. If the office purchased 20,000 thermometer covers this year, what is the price variance?

Answer 1

#6: Following are the 4 phases of management control:-

a) Planning- It involves formulation of plan to answer the question of how to achieve the goal. It incorporates all the visible and potential challenges and obstacles that one would face during the course of the plan and journey towards the goal.

b) Organising- It involves formulation a timeline on when to do what in the process of achieving the goal. Also, various individuals or a group is delegated some authority and responsibility related to a specific task as a part of the whole process.

c) Leading- When all the responsibility has been conveyed and taken over by the respective people, it is important for the leader to ensure that the whole process is carried out smoothly as per the planned timeline. This needs him/her to coordinate with, motivate and inspire the people to take the ownership of their task, and also suggest and advise them the required course of action whenever they get stuck.

d) Controlling- This is the evaluation phase of the management control, where actual vs planned performance is compared, and brainstorming is done on how to improve the system and reduce the waste to minimum possible level.

#8: Price Variance= (Present Cost-Past Cost)* Units Purchased=(0.08-0.06)*20000=$400