Strathfield Day Surgery Centre will be opened for the first time on 1 June 2018

ID: 2403188 • Letter: S

Question

Strathfield Day Surgery Centre will be opened for the first time on 1 June 2018 and is developing an operating budget for the month ending June 30, 2018. Thee Centre expects to perform 80 surgical procedures during the month. There are 2 types of procedures. Procedure 1 patients are charged $4,000 and the cost of surgical supplies for these patients is expected to be $800. Procedure 2 patients are charged $5,000 and the cost of surgical supplies for these patients is expected to be $3,500. The budget forecast is for 40 Procedure 1 patients and 40 Procedure 2 patients Strathfield Day Surgery Centre also contracts with orthopaedic surgeons at a fee of $1,500 per surgical procedure - this is the same whether they perform procedure 1 or procedure 2. The monthly salaries for the Centre's receptionist bookkeeper, and two surgical nurses total $20,500 The Centre's occupancy costs, which include rent, insurance, and all utilities, are expected to be $18,200 per month. Average monthly communication costs are estimated to be $1,200 Office and operating room equipment was purchased in May 2018 for $240,000 and paid for in cash on 15th June 2018. The equipment is expected to have a five-year life and has no salvage value All patients pay their fee prior to the surgery and the doctors are paid in the month after performing the surgery. All other costs are expected to be paid in the month they are incurred

Explanation / Answer

A) Operating Budget (June)

Particulars

Amount (in $)

Revenue :-

Procedure 1 (40*4000) 160000

Procedure 2 (40*5000) 200000

Costs:-

Procedure 1 (40*800) 32000

Procedure 2 (40*3500) 140000

Surgeons fees (80*1500) 120000

Other salaries 20500

Utilities 18200

Communications cost 1200

Depreciation 4000

(240000/60 months)

360000

335900

Expected Budgeted operating profit

24100

B) Report on difference:-

Analysis

there is basicsally no profit in procedure 2 because cost of surgical supplies and doctors fees of procedue 2 is equal to the revenue of procedure 2.hence to make a profit of 20000$, there should be contribution from procedure 1 equal to fixed cost (43900) + 20000$ profit.

required procedure 1 surgeries = fixed cost + profit / contribution from procedure 1

= 63900/ (4000-800-1500) = 37.58 or 39 procedure 1 surgeries.

Advice :- revenue of procedure 2 should be increased because there is no profit from procedure 2. pricing of procedure 1 is correct.