What would you consider when reviewing a budget?
I would consider the total revenue expected for the particular period the budget is being drafted for in order to come up with a manageable budget. The expenditure would also be important as it shows how much the business will spend in relation to the available revenue. In reviewing a budget, it is important to make sure the expenditure does not exceed the total revenue. The business market conditions and future aspirations and goals are also relevant in reviewing the budget. The market conditions enable the budget to consider the expected revenues in the future. Such a consideration is directly related to the business goals as the market conditions make it possible to consider any expenses that may be relevant to achieving the business goals when reviewing the budget for the business (Kemps, 2003).
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Under what conditions are a flexible budget more effective than a forecast budget?
A flexible budget is more effective than a forecast budget when the business involved does not have a constant market base and predictable income. A flexible budget also ensures that the management is able to make the necessary changes in the budget in case adjustments are needed.
A forecast budget just depends on the past to be able to predict what may happen in the future in terms of revenues and earnings. Hence, the forecast is only effective when the business conditions are predictable, and the market base is constant. Thus a flexible budget is more effective since it ensures that even with all those ups and downs in the market, the business is able to sustain its operations (Kemps, 2003).
How does understanding how costs behave assist you in managing a hospital under the Medicare prospective payment system?
Understanding the costs associated with the expenses of running a hospital is vital since it is from the costs that we are able to determine the amount of profit the hospital can make in relation to the revenue. A hospital that operates under the Medicare prospective system is bound by the government to provide quality services at a given incentive that is paid by the government. This incentive makes many patients prefer utilizing this system of payment than paying for the whole service in cash (Mayes & Berenson, 2008).
Hence, if the management understands how the expenses increase or decrease, they are able to relate these to the number of incentives received, and they can be able to make a profit. If it happens that they cannot predict or estimate the amount of money to be spent on expenses and at the same time they are not aware of how much money is expected through the Medicare Prospective payment system, then such a hospital is at risk of making losses.
The behavior of costs can be predicted or regulated depending on the budgeting mechanism present at the hospital. Hence, a hospital with fewer costs will tend to gain more from the Medicare prospective system as compared to one with many costs and are unable to regulate its costs. When costs are understood, they can be easily reduced by cutting down on spending. In this manner, the expenses are monitored and kept within allowable limits, thus enabling the management of the hospital to make profits even under the Medicare payment system. In this system, the hospital should try as much as possible to limit the number of days a patient is admitted. This is because the medical coverage only caters to a specific number of days, and when exceeded, the extra cost is incurred by the hospital (Mayes & Berenson, 2008).
Kemp, S. (2003). Budgeting for managers. New York: McGraw Hill Professional.
Mayes, R., & Berenson, R. (2008). Medicare Prospective Payment and the Shaping of U.S. Health Care. Baltimore, Maryland: The Johns Hopkins University Press.