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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Evaluating budgeting systems in a service company

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.”

  1. a. What budgeting methods are being used under the new approach?
  2. b. Why are these methods superior to the former approaches?

a.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To explain: the budgeting methods that are being used under the new approach.

Explanation

The new budget method introduced by the hospital is a flexible budget. The budgeted figures changes with the changes in the activity base of patient days. Patient days is determined by multiplying the number of patients with the number of days in the hospital...

b.

To determine

To explain: the reason for these methods being superior to the former approach.

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