Amadi hospital is organised into separate medical units offering specialized nursing care services such as maternity
and pediatric services. Information for pediatric unit for 2020 has just been availed. Revenue earned was
Sh. 4,400,000 and patients were charged a fee of Sh.2,000 per patient day for nursing care. The cost of running the
unit consists of variable costs on catering and laundry services. These are based on the number of patient days spent
in the hospital, direct staffing costs established from personnel requirements applicable to particular levels of patient
days and allocated fixed costs such as security and administration that are based on bed capacity. The bed capacity
currently stands at 80 beds.
The number of beds available for occupation is regarded as bed capacity and which is agreed and held constant for
the whole year. There was an agreement that a bed capacity of 80 would apply to the pediatric for the 365 days of
the year.
The table below shows the variable cost information in the pediatric unit based on patient days in 2020:
| Sh. |
| Catering | 4,500,000 |
| Laundry | 1,500,000 |
| Pharmacy | 5,000,000 |
| 11,000,000 |
Staffing cost: Each specialty recruits its own nurses, supervisors and assistants. The staffing requirements for the
pediatric unit is on the actual patient days.
| Patient days p.a | Supervisors | Nurses | Assistants |
| Upto 20,500 | 4 | 10 | 20 |
| 20,501 – 23,000 | 4 | 13 | 24 |
| Over 23,000 | 4 | 15 | 28 |
The annual costs of employment per employee are:
| Sh. |
| Supervisors | 220,000 |
| Nurses | 160,000 |
| Assistants | 120,000 |
Fixed costs based on bed capacity are:
| Sh. |
| Administration | 8,500,000 |
| Security | 800,000 |
| Rent and property | 7,200,000 |
| 16,500,000 |
During the year 2020, the pediatric unit operated at 100% bed capacity for 100 days. In fact, the demand was at least
20 beds more than the capacity during these days. As a consequence, in the 2021 budget, an increase in bed capacity
has been agreed. 20 extra beds will be contracted for the whole year. It is assumed that the 100 beds will be fully
occupied for the 100 days. An increase of 10% in employment costs due to a rise in wage rate is expected to occur
in 2021 for all personnel. The revenue per patient day, all other cost factors and the remaining occupancy will remain
the same as 2020.
Required:
(i) Determine the actual number of patient days, bed occupancy percentage, net profit or loss and break even
number of patient days for the year 2021.
(ii) Prepare the budget for 2021 showing the revised number of patient days, bed occupancy percentage, net
profit or loss and the number of patient days required to achieve the same profit or loss in 2019.
(iii) Advice the unit manager based on your findings in b(i) and (ii) above.
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