Kelly Chapter 4

Cost-benefit analysis

Amy is budgeting for implementation of a computer-assisted coding (CAC) product in the HIM department. She has detailed all the prices associated with CAC as well as the advantages to implementing CAC at this time. Amy has prepared what type of document to submit with her budget request?

One year

Capital assets are considered to be physical assets with a useful life of more than:

Advantages to a fixed budget are that a fixed budget is easier to prepare and maintain due to the fact that the budgets are based on a single volume projection. The disadvantage is that fixed budgets generally create variances throughout the budget period that must be explained. A fixed budget is also static and does not allow for large fluctuations that may occur throughout the budget period. Advantages to flexible budgets are that there are fewer budget variances to explain; a flexible budget also allows an organization to respond more efficiently to large fluctuations in volume. The disadvantage to flexible budgets is that they are more difficult to prepare since they are based on multiple projected levels of productivity.

Compare the advantages and disadvantages to fixed and flexible budgeting.

Once the fiscal year or budget period begins, the budget moves from being a planning tool to a control tool in the controlling function of management. The monthly budget report is the tool the manager uses to control the financial aspects of the department.

Determine when a budget becomes a tool in the controlling function of management.

While both methods are usually used to prepare an operating budget, a top-down approach to developing a budget means that the budget is prepared by the budget or finance department and then distributed to individual departments. There is very little managerial input into a top-down approach. On the other hand, a bottom-up approach means the operating budget is prepared at the department level with input from those who work most closely with the budget. This budget is still subject to approval by senior administration.

Differentiate between a top-down and bottom-up approach to developing a budget.

Budget variances are calculated based on review of the budget report, which shows both the original budgeted amount in a given category and the actual amount spent in the category. If the actual amount spent is less than the budgeted amount, there is a positive variance. If the actual amount spent is more than the budgeted amount, there is a negative variance.

Explain how positive and negative budget variances are calculated.

A cost justification is the rationale developed to support a budget report. There are usually competing requests for limited resources, so cost justifications are used to decide how the organization's limited resources will be spent. Cost justifications explain the need for a budget request and may also be used to prioritize budget requests.

Explain the importance of a cost justification in relation to budget requests.

A cost-benefit analysis can be done with almost any type of budget but is generally associated with a capital budget. A manager must first identify all costs (measurable and nonmeasureable) associated with a capital item. Then the benefits (measureable and nonmeasureable) associated with the item are identified. Monetary values are then assigned to the costs and benefits. The dollar values are compared, and if the value of the costs exceeds the value of the benefits, the purchase needs to be examined more closely, as it may not be beneficial to the organization.

Identify the items that need to be considered when developing a cost-benefit analysis.

-20%, a positive variance

The budgeted amount for coding wages for March 2020 is $37,500. Unexpectedly, two coders resigned at the end of February and their positions remained unfilled in March, causing the actual March 2020 budget to be $30,000. What is the budget variance for March 2020?

-30%

The wages for the coding section in FY2019 were $450,000. Due to the difficulty in filling three coding positions, the wages dropped to $315,000 in FY2020. What is the percent variance from FY2019 to FY2020?

Office supplies for coders and billers.

Which of the following is an example of an operating expense?