"Inventory Analysis and Optimizing Staffing" Please respond to the following: Recommend a strategy for financial administrators to balance the tension between having inventory on hand when it is needed versus the carry cost to the organization. Provide s
sunnyday62this is the lecture that goes with the discussion
HSA525 Week 4, Lecture 1 Script: Understanding Inventory and Depreciation Concepts | ||
Slide # | Scene/Interaction | Narration |
Slide 1 | Scene 1 Professor Quan greets students and begins lecture. | HSA525_4_1_1_ProfQuan-1: Hello everyone….welcome back to class. During this lecture, we will focus on inventory.
HSA525_4_1_1_ProfQuan-2: Today's healthcare systems face many daily challenges such asdelivering quality care to patients, little or no inventory visibility, diverse patient care processes, and complex payment structures…all spanning geographically in dispersed facilities. Given the challenging nature of healthcare delivery and materials management within the healthcare organization, managing inventory efficiently and effectively is a critical aspect of handling these challenges.
HSA525_4_1_1_ProfQuan-3: Inventory affects both the organization’s balance sheet as well as income statements. When inventory is purchased, it’s classified as a short term asset on the balance sheet, and when consumed, it becomes an expense or cost of patient care. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact profitability and cash flow.
HSA525_4_1_1_ProfQuan-4: A very important aspect of managing inventory involves projecting the appropriate type and amount of supplies. This process of inventory management can be challenging for three basic reasons: possible lag time or the time it takes to order and receive supplies, uncertainty related to patient demands, and product discontinuations.
HSA525_4_1_1_Sophia-1: Professor, I understand lag time and discontinuations, but do not fully understand how uncertainty related to patient demands affects inventory management. Can you provide an example?
HSA525_4_1_1_ProfQuan-5: Sure, uncertainty is affected by the fluctuations with volume and the patient type. For example, if the supply is something that is used in life-saving emergencies, the manager will have a high level of stock to ensure that the item is always available. If the item is seldom used, the manager will maintain a very low stock or no stock at all.
HSA525_4_1_1_Tyler-1: What are the specific effects of inventory on costs?
HSA525_4_1_1_ProfQuan-6: Inventory is considered a non-productive asset. It does not grow or produce income. It also creates a storage cost, insurance cost, and a purchase cost.
HSA525_4_1_1_Lauren-1: Professor, can you explain cost of goods sold, particularly as it relates to healthcare?
HSA525_4_1_1_ProfQuan-7:Certainly, the cost of goods sold is the direct costs incurred in the production of the goods sold by a company. The cost of goods sold includes the cost of the materials and direct labor costs. It appears on the income statement and can be deducted from revenue to calculate a company’s gross margin.
HSA525_4_1_1_ProfQuan-8: To make it applicable to healthcare, I will use the example of a patient who is being cared for in a hospital. The patient accrues costs by virtue of occupying a hospital bed and receiving services.
HSA525_4_1_1_ProfQuan-9: Therefore, the patient is considered part of the work in process inventory. Upon becoming discharge, the patient is considered a finished good. Consequently, the accumulated costs become part of cost of goods sold.
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Slide 2 | Scene 2 Professor Quan lectures about FIFO, LIFO and Weighted Average. | HSA525_4_1_2_ProfQuan-1: Costs related to inventory are found in two places on the healthcare organization’s financial statements. On the balance sheet, inventory is listed as a current asset. When the inventory is consumed, it appears as an expense (or cost of patient care) on the organization’s income statement.
HSA525_4_1_2_ProfQuan-2: One of the most important inventory functions of the manager is inventory valuation, or the value at which the inventory is carried on the balance sheet. Common methods used in valuing inventory include FIFO, LIFO, and Weighted Average Cost.
HSA525_4_1_2_ProfQuan-3: FIFO refers to first in, first out…FIFO assumes that as -inventory is acquired, the older inventory is consumed first so that inventory is valued at the more recent cost.
HSA525_4_1_2_ProfQuan-4: LIFO or last in, last out, on the other hand makes the basic assumption that the last item put into inventory is the first item taken out of inventory so that inventory is valued at an early costs.
HSA525_4_1_2_Sophia-1: Professor, what would be the logic of LIFO…it stands to reason that the first items acquired should be the first items used?
HSA525_4_1_2_ProfQuan-5: LIFO uses cost related to inventory of the earliest purchases. The total cost of inventory is determined by multiplying the unit cost of the oldest items in inventory by the number of units in inventory.
HSA525_4_1_2_ProfQuan-6: There are tax advantages to the LIFO method. It defers paying taxes on cost escalation due to inflation. In a period of rising prices or inflation, LIFO will result in a larger cost of sales (patient care) deduction which reduces taxable income and taxes paid. Paying less current tax means more cash to run and grow the business.
HSA525_4_1_2_Lauren-1: So, what are the advantages of using FIFO?
HSA525_4_1_2_ProfQuan-7: FIFO, contrary to LIFO, produces an inventory valuation on the most current cost. The total cost of inventory is determined by multiplying the unit cost of the newest items in inventory by the number of units in inventory.
HSA525_4_1_2_ProfQuan-8: Under the FIFO method, the value of inventory reflects the actual price paid.
The other method for discussion includes weighted average. Weighted average determines the average cost of items placed in inventory then multiplies the average cost by the number of units in inventory.
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Slide 3 | Scene 3 Professor Quan begins to explain each method by going over an example. (Prof. Quan approaches the whiteboard and begins to explain and example using a chart of information). | HSA525_4_1_3_ProfQuan-1: Let’s take a closer look at each inventory costing method. Let’s assume Horizon’s central billing office purchased magnetic storage disks on several dates throughout the year. You can follow along using the table on the screen.
HSA525_4_1_3_ProfQuan-2: The beginning balance on January 1st was 10 units at a price of $15 totaling $150. Then on March 1st, 30 units were purchased at $14 each totaling $420. On May 1st 40 more units were purchased for $14 each totaling $560. Then on July 1st an additional 10 units were purchased for $13 each totaling $130. On September 1st, Horizon purchased 20 units for $12 each totaling $240. Finally on November 1st 10 more units were purchased for $12 each totaling $120 dollars.
HSA525_4_1_3_ProfQuan-3: The ending inventory on December 31st totaled 120 with a total purchase price of $1,620.
HSA525_4_1_3_ProfQuan-4: Determining the ending cost of inventory helps the manager to meet anticipated patient demand for supplies, communicate demand information to the supply chain, and enables the manager to hedge against price increases. The prudent manager also uses this information to take advantage of order cycles and take proactive steps to avoid stock-outs.
HSA525_4_1_3_ProfQuan-5: Now let’s calculate using FIFO, LIFO, and weighted average to find the ending cost of inventory.
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Slide 4 | Scene 4 Professor Quan goes over the example and uses FIFO, LIFO, and weighted average | HSA525_4_1_4_ProfQuan-1: Using the FIFO method, let’s compute ending inventory costs….
HSA525_4_1_4_ProfQuan-2: Calculate FIFO inventory costs by assuming that every item sold came out of the first-purchased inventory. First, we consider the ending inventory of the most recent 35 disks, which has purchase dates of November 1st, September 1st, and July 1st. We are considering only 35 disks, which was established as ending inventory on December 31.
HSA525_4_1_4_ProfQuan-3: If you refer to the table on the screen you will see that on November 1st 10 units were purchased for $120 ($12 each); September 1st 20 units were purchased for $240 ($12 each); and July 1st costs we apply 5 of the 10 units for $65 ($13 each). The ending inventory of 35 units has an ending inventory cost of $425 or $12.14 per disk.
HSA525_4_1_4_Tyler-1: Professor, I am not sure why we only considered 5 units from July, please explain.
HSA525_4_1_4_ProfQuan-4: Remember, that we have an ending inventory of 35 units. In order to apply FIFO, we have to take into account that FIFO produces inventory for the newest items. Therefore, the items purchased most recently in November, September, and July would be appropriate in our calculations. The ending inventory was 35 units…Horizon purchased 10 units in November, 20 units in September, and 5 of the units purchased in July would equal the 35 units in ending inventory.
HSA525_4_1_4_Tyler-2: Ok, thanks. That makes sense now.
HSA525_4_1_4_ProfQuan-5: Now let’s compute using LIFO. With this method you would simply consider the reverse, or the last items put into inventory.
HSA525_4_1_4_ProfQuan-6: So this would be January 1st costs of $150 for the 10 units at $15 each and March 1st costs of $350 for 25 units at $14 each. For March we only applied 25 of the 30 units since the ending inventory is 35. So with LIFO the ending inventory costs equal $500 or $14.29 per disk.
HSA525_4_1_4_ProfQuan-7: To compute the weighted average, simply divide total costs by total units, then multiply by ending inventory.
So, $1620 divided by 120 x 35 equals $472.50
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Slide 5 | Check Your Understanding |
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Slide 6 | Scene 5 Professor Quan explains the concept of depreciation. | HSA525_4_1_5_ProfQuan-1: We will now shift our attention to the concept of depreciation, which is the allowance for wear and tear on equipment and machinery.
HSA525_4_1_5_ProfQuan-2: Depreciation expense spreads the cost of a fixed asset over the useful life of the asset. Depreciation not only affects the asset's value as stated on the balance sheet, it also affects the amount of reported earnings.
Depreciation indicates how much of an asset's value has been “used up”.
HSA525_4_1_5_ProfQuan-3: Accumulated Depreciation is considered a contra asset account. You may recall from our previous lecture that a contra asset is a negative asset account that is designed to offset the balance in the asset account with which it is paired. Let’s consider three common methods of depreciating assets for financial statement purposes.
HSA525_4_1_5_ProfQuan-4: Straight Line depreciation is perhaps the simplest and most commonly used depreciation method. Under the straight-line approach the annual depreciation is calculated by dividing the depreciable base by the service life.
HSA525_4_1_5_ProfQuan-5: Accelerated depreciation is another common method in which larger amounts of depreciation are taken in the beginning years of the life of an asset and smaller amounts in later years.
HSA525_4_1_5_Tyler-1: So what is the advantage of taking larger amounts of depreciation in the beginning?
HSA525_4_1_5_ProfQuan-6: The objective of this method, the accelerated depreciation method is to defer taxes legally, thereby allowing funds to be retained by a business to finance growth.
HSA525_4_1_5_ProfQuan-7: A third method of computing depreciation is the Units of Production method. In units of production method of depreciation, depreciation is charged according to the actual usage of the asset. The higher depreciation is charged when there is higher activity and less is charged when there is low level of activity. Zero depreciation is charged when the asset is idle for the whole period.
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Slide 7 | Check Your Understanding |
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Slide 8 | Scene 6 Summary | HSA525_4_1_6_ProfQuan-1: This concludes our lecture for today. Are there any questions?
HSA525_4_1_5_Lauren-1: No questions….thanks, Professor
HSA525_4_1_5_Tyler-1: No questions at this time…
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HSA525 Week 4, Lecture 2 Script: Staffing: The Manager’s Responsibility | ||
Slide # | Scene/Interaction | Narration |
Slide 1 | Scene 1: Introduction to lecture. Prof. Quan begins to lecture in front of class | HSA525_4_2_1_ProfQuan-1: Hello! Today our lecture will include a discussion on staffing.
HSA525_4_2_1_ProfQuan-2: One of the most important resources of any organization is its people. In healthcare organizations workers are staffed to fill shifts that operate 24 hours a day and seven days a week.
HSA525_4_2_1_ProfQuan-3: Managers have the responsibility of ensuring that shifts are staffed adequately in order to provide optimal service levels. Managers in healthcare organizations need to create an effective staffing balance without overtaxing personnel resources.
HSA525_4_2_1_ProfQuan-4: Overstaffing results in increased labor costs and lost productivity; while understaffing may have a significant impact on the quality of patient care.
HSA525_4_2_1_ProfQuan-5: Healthcare managers often use one of two common approaches to computing fulltime equivalent headcount. These approaches are annualizing and scheduled-positioning.
HSA525_4_2_1_ProfQuan-6: Annualizing is used because employees are paid for more hours than they are on duty, for instance, vacation days. So, annualizing allows the full cost of the position to be computed through a “burden” approach.
HSA525_4_2_1_Lauren-1: Professor, can you explain what you mean by burdened?
HSA525_4_2_1_ProfQuan-7: Certainly….a burdened approach allows for the net hours desired to be inflated, in order to arrive at the gross number of paid hours necessary to obtain the desired number of net hours on duty from the employee. In other words, annualized hours are based on a system of scheduling that annualizes labor cost, rather than direct hours worked on a weekly basis.
HSA525_4_2_1_ProfQuan-8: The employer calculates work hours annually taking into account many different factors that may affect employee schedules.
HSA525_4_2_1_Sophia-1: So, what are the benefits of annualizing for the healthcare organization?
HSA525_4_2_1_ProfQuan-9: It allows the employer to determine the full cost of a staff member per year. This is important because the total cost of staff is usually the bulk of the employer’s budget.
HSA525_4_2_1_Tyler-1: When is schedule positioning most often used?
HSA525_4_2_1_ProfQuan-10: The schedule position method is often used when forecasting new programs and services.
HSA525_4_2_1_ProfQuan-11: Another key difference between annualizing and scheduled position is that non-productive time is inherently included in the formula in annualizing. Non-productive time refers to the paid-for time when the employee is not on duty. This would include vacation and sick time.
HSA525_4_2_1_ProfQuan-12: The non-productive time differs from productive time as the productive time represents the employee’s net hours on duty. Managers use this information to determine their staffing needs.
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Slide 2 | Scene 2: Prof Quan continues to lecture on staffing. Goes over an example on the screen. | HSA525_4_2_2_ProfQuan-1: Managers must assess the number of employees required to fill a position. Determining the number of Full Time Equivalents or FTE helps to assess the current work activities with related time and cost measures. As a result, a manager can better understand the root causes of workload fluctuations, productivity gaps, and workflow challenges.
HSA525_4_2_2_ProfQuan-2: The basic calculation for determining the number of FTEs needed is workload hours divided by the working hours of 1 FTE within the organization.
HSA525_4_2_2_Tyler-1: So, professor….what specifically constitutes an FTE when used in annualizing?
HSA525_4_2_2_ProfQuan-3: An FTE for the purpose of annualizing is the equivalent of one full-time employee, or two part time employees.
HSA525_4_2_2_ProfQuan-4: To demonstrate the calculations in the process of annualizing, let’s consider the steps involved.
HSA525_4_2_2_ProfQuan-5: There are two basic steps in staffing calculations to annualize positions. The first step involves the computing of the net paid days worked. So, we would determine the number of paid annual days. Then, we would subtract paid days not worked, for instance, sick days. This would yield the net paid days worked.
HSA525_4_2_2_ProfQuan-6: The second step would require that we convert the net paid days to a factor.
HSA525_4_2_2_Lauren-1: So, how do we convert net paid days to a factor?
HSA525_4_2_2_ProfQuan-7: To convert net paid days to a factor, we would simply consider the total days in the business year divided by net paid days worked. For instance, if the total days in the business year equals 365 and the employee works five days per year, the number of paid days per year would equal 261, as you would subtract the two days off (2 times 52 weeks in a year) per week from the number of days within the year.
HSA525_4_2_2_ProfQuan-8: In addition, we must subtract any days paid but not actually worked, such as vacation, sick days, or holidays to determine the net paid days worked.
HSA525_4_2_2_ProfQuan-9: Finally, we would divide the total number of days in the business year by the net paid days worked to arrive at the factor.
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Slide 3 | Check Your Understanding Which of the following statements are characteristics of annualizing? A. Annualizing allows for the full cost of the position to be computed through a burden approach. B. Annualizing creates a challenge in terms of determining the actual costs of a staff member C. Annualized hours are based on a weekly schedule
A. Correct! This statement is a characteristic of annualizing. B. Incorrect….Annualizing actually makes it easier to determine actual costs of staff members C. Incorrect….Annualizing is based on the annual (or in some cases, monthly) schedule as opposed to weekly schedule
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Slide 4 | Scene 3 Prof Quan in front of projector to explain example. | HSA525_4_2_3_ProfQuan-1: The other method of FTEs is through calculations by position. Calculations by position is used in controlling, planning, planning and decision making which are all key factors of management.
HSA525_4_2_3_ProfQuan-2: Let’s go over an example of this approach ….One full time employee works 40 hours per week. One eight-hour shift per day times seven days per week equals 56 hours on duty. Therefore, to cover seven days per week, or 56 hours requires 1.4 times a 40-hour employee, which is the equivalent of 56 hours divided by 40 hours which equals 1.4 FTEs.
HSA525_4_2_3_Tyler-1: Would an example of staffing by position be projected staffing for a new clinic?
HSA525_4_2_3_ProfQuan-3: Absolutely….that is precisely why this method is often used in terms of planning.
HSA525_4_2_3_Sophia-1: Does annualizing save the employer in terms of costs?
HSA525_4_2_3_ProfQuan-4: In some ways, it is considered a cost saving method. With annualized hours, schedules can be shifted to have full-time employees work longer shifts during peak times, thus saving costs. But, it is important to note that an annualized work schedule requires meticulous planning …if not carried out correctly, it could prove to be cost prohibitive.
HSA525_4_2_3_Lauren-1: It is clear that the manager has a huge responsibility in terms of staffing in order to ensure efficiency. Staffing is a little more complicated than I initially thought. The information provided today has really helped to put the issue of staffing into better perspective for me…
HSA525_4_2_3_Tyler-2: I would agree…we don’t often consider all of the factors that go into determining the staffing needs of the organization.
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Slide 5 | Scene 4 Summary | HSA525_4_2_4_ProfQuan-1: This concludes our lecture on Staffing….are there any questions?
HSA525_4_2_4_Sophia-1: No, I think that I have a better grasp on the issue of staffing and how it impacts the role of the manager.
HSA525_4_2_4_Tyler-1: No questions…
HSA525_4_2_4_Lauren-1: None at this time…thanks
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10 years ago
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