Complete the Operating Budget. Assume the 2009
projections were realized. Use the 2009 budget and the 2010 budget
assumptions to calculate expenses and income for 2010. The revenues
have been completed for you.

2009 (Proj)

2010 Budgeted % Change From 2009
Projection

2010 Budget

2010 Operating Budget
Assumptions

Revenue

Based on these 2009 assumptions: a 3% overall
deflation rate for prices in 2009—due to the weak economy—will
continue into 2010.

Net patient revenue

459,900

3%

473,697

Patient revenue will continue to increase, but at a
decreased rate, with little or no increase in patient volume, due
to new managed care contracts.

Other revenue

3,082

15%

3,544

Marketing’s plan to increase donations by 15%

Total revenue

462,982

3%

477,241

2009 (Proj)

2010 Budgeted % Change From 2009
Projection

2010 Budget

2010 Operating Budget
Assumptions

Expenses

Salaries and benefits

220,752

1%

Salaries will hold to a 1% overall increase in cost
due to price deflation nationwide, with no increase in labor hours,
due to no increase in patient volume. This assumption could be
affected by a board decision either to raise nursing wages by $1
per hour or to increase the nursing hour ratio.

Supplies

74,584

-3%

Supplies cost will decrease 3% due to the price
deflation and our current over-stock purchased last year.

Physician and professional fees

110,376

3%

Contracts for fees have a built-in 3% increase.

Utilities

1,200

5%

Utilities cost will increase to the rising cost of
oil partially offset by the efficiency of the hospital’s new
heating and cooling systems.

Other

1,840

0%

No net change in the cost or volume of these
items.

Depreciation & amortization (noncash
expenses)

36,036

0%

Some high-cost equipment—air conditioning, telephone
system, all patient beds, and headwalls—were replaced in 2009, and
depreciation rose sharply. Depreciation will remain at this level
in 2010.

Interest

3,708

30%

The repayment plan for any monies borrowed in 2009
will come due in 2010, with a sharp increase in interest cost.

Provision for doubtful accounts

13,797

10%

The renegotiation of managed care plans has delayed
collection and made collections less certain.

Total expenses

462,293

Total expenses will rise ____%.

2009 (Proj)

2010 Budgeted % Change From 2009
Projection

2010 Budget

2010 Operating Budget
Assumptions

Income

Operating income

689

Operating Income will improve, with the hospital’s
loss reduced by 2/3.

Loss (nonoperating
income)

Investment income

(62)

The market is down, expected to hold steady; a
zero-return is expected, with neither losses nor gains.

Net income

627

The hospital will continue its dramatic turnaround,
taking advantage of the stagnation in patient volume, price
deflation, the efficiency of new equipment, and the improved
arrangements with the managed care companies.

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