Week 4 Assignment prob

"t".. Chapter 8 469

Required

Compute the contribution margin for Greenside Clinic.

~itmffi~~t~~i~~~t::t~f.9jt!iw~~iJ!lJ;§qj:""'"~~~e~:M~,~~r ,:;c~>;;.;;:;;7i The Mental Health program for the Community Center has just completed its fiscal year end. The program director determines that his program has revenue for the year of $1,210,000. He believes his variable expense amounts to $205,000 and he knows his fixed expense amounts to $1,100,000.

Required

1. Compute the contribution margin for the Community Center Mental Health Program.

2. What does the result tell you about the program?

Example 7-3: Cost-Volume-Profit (CVP) Ratio and Profit-Volume (PV) Ratio

'-'n~"<;;ly review the examples of ratio calculations in the chapter text. Also note that examples are presented in visuals as well as text.

rracti(:e Exercise 7-3: Calculating the PV Ratio

profit-volume (PV) ratio is also known as the contribution margin (CM) ratio. Use the assumptions for 'the Community Center Mental Health Program. In addition to the

___.":1.... margin figures already computed, now compute the PV ratio (also known as CMratio).

~i!~nellt Exercise 7-3: Calculating the PV Ratio and the CVP Ratio

, same assumptions for the Greenside Clinic. One more assumption will be added: dinic had 35,000 visits.

; ,In addition to the contribution margin figures already computed, now compute the ,; PV ratio (also known as the CM ratio). ; ;Add another,column to your worksheet and compute the clinic's per-visit revenue and costs.

,': Create a Cost-Volume-Profit chart. Refer to the chapter text along with Figure 7-6.

~[lerltEXercise 8-1: FIFO and LIFO Inventory

FIFO and LIFO explanations in the chapter.

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470 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, AND SOLUTIONS

Required

al. Use the format in Exhibit 8-1 to compute the ending FIFO inventory and the cost of goods sold, assuming $90,000 in sales; beginning inventory 500 units @ $50; purchases of 400 units @ $50; 100 units @ $65; 400 units @ $80. .

a2. Also compute the cost of goods sold percentage of sales. b1. Use the format in Exhibit 8-2 to compute the ending LIFO inventory and the

cost of goods sold, using same assumptions. b2. Also compute the cost of goods sold percentage of sales.

c. Comment on the difference in outcomes.

Assignment Exercise 8-2: Inventory Turnover

Study the "Calculating Inventory Turnover" portion of the chapter closely, whereby the cost of goods sold divided by the average inventory equals the inventory turnover.

Required

Compute two inventory turnover calculations as follows:

1. Use the LIFO information in the previous assignment to first compute the average;~:1 inventory and then to compute the inventory turnoveL

2. Use the FIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.

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Example 8A: Depreciation Concept

Assume that Metropolis Health System (MHS) purchased equipment for $200,000 cash Oil,,),: April 1 (the first day of its fiscal year). This equipment has an expected life oflO years. The,'.-'-: salvage value is 10% of cost. No equipment was traded in on this purchase. ,'/f>

Straight-line depreciation is a method that charges an equal amount of depreciatio~:,;2f for each year the asset is in service. In the case of this purchase, straight-line .. -" would amount to $18,000 per year for 10 years. This amount is computed as follows:

Step 1. Compute the cost net of salvage or trade-in value: 200,000 less 10% or 20,000 equals 180,000. .'

Step 2. Divide the resulting figure by the expected life (also known as estimated . life): 180,000 divided by 10 equals 18,000 depreciation per year for 10 years.' ..

Accelerated depreciation represents methods that are speeded up, or accelerated. Inu,-"l~t,.-":: words a greater amount ofdepreciation is taken earlier in the life of the asset. One CA'Ulllf'L~.V!;::,;, accelerated depreciation is the double-declining balance method. Unlike straight-line ciation, trade-in or salvage value is not taken into account until the end of the schedule. This method uses book valUe, which is the net amount remaining when l..w.uu.,"",,·,'C. previous depreciation is deducted from the asset's cost. The computation is as follows:

Step 1. Compute the straight-line rate: 1 divided by 10 equals 10%. Step 2. Now double the rate (as in double-declining method) : 10% times 2 equals

Chapter 8 471

Step 3. Compute the first year's'depredation expense: 200,000 times 20% equals 40,000. St~p 4. Compute the carry-forward book vaJue at the beginning of the second year:

200,000 book value beginning Year 1 less Year 1 depredation of 40,000 equals book value at the beginning of the second year of 160,000.

Step 5. Compute the second year's depredation expense: 160,000 times 20% equals 32,000.

Step 6. Compute the carry-forward book value at the beginning of the third year: 160,000 book value beginning Year 2 less Year 2 depreciation of 32,000 equals book value at the beginning of the third year of 128,000. -Continue until the asset's salvage or trade-in value has been reached. . -Do not depredate beyond the salvage or trade-in value.

Practice Exercise 8-1: Depreciation Concept

Assume that MHS purchased equipinent for $600,000 cash on April 1 (the first day of its fis- . cal year). This equipment has an expected life of10 years. The salvage value is 10% of cost. No equipment was traded in on this purchase.

Required

1. Compute the straight;-line depreciation for this purchase. 2. Compute the double-dedining balance depreciation for this purchase .

. Assignment Exercise 8-3: Depreciation Concept

Assume that MHSpurchased two additional pieces of equipment on April 1 (the first day fiscal year), as follows:

The laboratory equipment cost $300,000 and has an expected life of 5 years. The salvage value is 5% of cost. No equipment was traded in on this purchaSe. The radiology equipment cost $800,000 and has an expected life of 7 years. The salvage value is 10% of cost. No equipment was traded in on this purchase .

. Compute the straight;-line depreciation. Compute the double-dedining balance depreciation.

',ample 8B: Depreciation

example shows straight-line depreciation computed at a five-year useful life with u .... vo.><c; value. Straight-line depreciation is the method commonly used for financing

[11P,rt",1'l" and funding proposals.

472 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, AND SoLUTIONS

Depreciation Expense Computation: Straight Line

Five year useful life; no salvage value

Annual Remaining Year # Depreciation Balance

Beginning Balance = 60.,0.0.0. 1 12,000 48,000. 2 12,00.0 36,000. 3 12,000 24,000 4 12,000 12,000. 5 12,000 -0­

Example 8C: Depreciation

This example shows straight-line depreciation computed at a five-year useful life with a remaining salvage value of $10,000. Note the difference in annual depreciation tlPtWPI'l1 Example 8B and Example 8C.

Depreciation Expense Computation: Straight Line

Five year useful life; $10,000 salvage value

Annual Remaining Year # Depreciation Balance

Beginning Balance = 60.,000 1 10,000 50,000 2 10,000 40,00.0. 3 10,000. 30,000. 4 10,000. ·20,000 5 10.,000 10,000

Example 8D: Depreciation

This example shows double-declining depreciation computed at a five-year useful no salvage value. AS is often the case with a five-year life, the double-declining . for the first three years and the straight-line method is used for the remaining. The double-declining method first computes wha~ the straight-line percentage this case 100% divided by five years equals 20%. The 20.% is then doubled. In this times 2 eq.!lals 40%. Then the 40% is multiplied by the remaining balance to be . Thus 60,000 times 40% for year one equals 24,000 depreciation, with a . 36,0.00. Then 36,000 times 40% for year two equals 14,400 depreciation, and ,Jv,VV'J. 14,40.0 equals 21,600 remaining balance, and so on.

Now note ~e difference in annual depreciation between Example 8B, using for all five years, and Example 8D, using the combined double-declining and methods. .

Chapter 8 473

Depreciation Expense Computation: Double-Declining-Balance

Five year useful life; $1 0,000 salvage value

Annual Remaining Year # Depreciation Balance

Beginning Balance = 60,000 1 24,000* 36,000 2 14,400* 21,600 3 8,640* 12,960 4 6,480** 6,480 5 6,480** 6,480

*double-declining balance depreciation ** straight-line depreciation for remaining two years (12,960 divided by 2 = 6,480/yr)

•... , Practice Exercise S:-ll: Depredation

... Compute the straight-line depreciation for each year for equipment with a cost of$50,000, a five-year useful life, and a $5,000. salvage value .

.Assignment Exercise 8-4: Depreciation

• Set up a purchase scenario of your own and compute the depreciation with and without value.

As!;igrmuent Exercise s.::.5: Depreciation Computation: Units-of-Service

the "Units of Service" portion of the chapter closely.

1. Using the format in Table 8-A-5, compute units of service depreciation using the following assumptions:

Cost to be depreciated = $50,000 Salvage value = zero Total units of service = 10,000 Units of service per year: Year 1 = 2,200; Year 2 = 2,100;

Year 3 = 2,300; Year 4 = 2,200; Year 5 = 200

2. Using the same format, compute units of service depreciation using adjusted as­ . sumptions as follows:

Cost to be depreciated = $50,000 Salvage value = $5,000 Total units of service = 10,000 Units of service per year: Year 1 =: 2,200; Year 2 = 2,100;

Year 3 = 2,300; Year 4 = 2,200; Year 5 = 200

474 EXAMPLES AND EXERCISES, SUPPLEMENTAL MATERIALS, AND SOLUTIONS

CHAPTER 9

Example9A

Review the chapter text about annualizing positions. In particular review Exhibit 9-2, which contains the annualizing calculations.

Practice Exercise 9-1: FI'Es to Annualize Staff'mg

The office manager for a physicians' group affiliated with Metropolis Health System (MHS) is working on her budget for next year. She wants to annualize her staffing plan. To do so she needs to convert her staff's net paid days worked to a factor. Their office is open and staffed seven days a week, per their agreement with two managed care plans.

The office manager has the MHS worksheet, which shows 9holidays, 7 sick days, 15 vaca­ tion days, and 3 education days, equaling 34 paid days per year not worked. The physicians' group allows 8 holidays, 5 sick days, and 1 education day. An employee must work one full . year to earn 5 vacation days. An employee must have worked full time for three full years .. before earning 10 annual vacation days. Because the turnover is so high, nobody on staff has earned more than 5 vacation days.

Required

1. Compute net paid days worked for a full-time employee in the physicians' group .. 2. Convert net paid days worked to a factor so the office manager can annualize het:

staffing plan.

AsSignment Exercise 9-1: FI'Es to Annualize Staff'mg

The Metropolis Health System managers are also working on their budgets for next Each manager must annualize his or her staffing plan, and thus must convert staff days worked to a factor. Each manager has the MHS worksheet, which shows 9 holidays, 7 daYS, 1S.vacation days, and 3 education days, equaling 34 paid days per year not TArnrlrPfl

The Laboratory is fully staffed 7 days per week and the 34 paid days per year not is applicable for the lab. The Medical Records department is also fully staffed 7 week. However, Medical Records is an outsourced department so the employee are somewhat different. The Medical Records employees receive 9 holidays plus sonalleave days, which can be used for any purpose.

Required

1. Compute net paid days worked for a full-time employee in the Laboratory Medical Records.

2. Convert net paid days worked to a factor for the Laboratory and for Medical so these MHS managers can annualize their staffing plans.

Chapter 9 475

Example9B I

Review the chapter text about staffing requirementS to fill a position. In particular review Exhibit 9-4, which contains (at the bottom of the exhibit) the staffing calculations. Remember this method uses a basic work week as the standard.

Practice Exercise 9-11: FTEs to Fill a Position

Metropolis Health System (MHS) uses a basic work week of 40 hours throughout the system. Thus, one full-time employee works 40 hours per week. MHS also uses a standard 24-hour scheduling system of three 8-hour shifts. The Admissions manager needs to compute the staffing requirements to fill his departmental positions. He has more than one Admissions office staffed within the system. The West Admissions office typically has two Admissions officers on duty during the day shift, one Admissions officer on duty during the evening shift, and one Admissions officer on duty during the night shift. The day shift also has one clerical person on duty. Staffing is identicaJ for all seven days of the week.

Set up a staffing requirements worksheet, using the format in Exhibit 9-4. Compute the number ofFTEs required to fill the Admissions officer po~ition and the clerical position at the West Admissions office.

AslsiglllnlentExercise 9-2: FTEs to.FiIl a Position

M .. ,trn,nnlj" Health System (MHS) uses a basic ~ork week of 40 hours throughout the sys­ Thus, one full-time employee works 40 hours per week. MHS also uses a standard

".'rJl~V'.U scheduling system of three 8-hour shifts. The Director of Nursing needs to com­ thestaffing requirements to fill the Operating Room (OR) positions. Since MHS is a

center, the OR is staffed 24 hours a day, 7 days a week. Atpresent, s~ng isjdenti~ for all 7 days of the week, although the Director ofNursing is questioning the efficiency this method.

. The Operating Room department is staffed with two nursing supervisors on the day shift

. one nursing supervisor apiece on the evening and night shifts. There are two techni­ on the day shift, two technicians on the evening shift, and one technician on the shift. There are three RNs on the day shift, two RNs on the evening shift, and one RN

one LPN on the night shift. In addition, there is one aide plus one clerical worker on day shift only.

Set up a staffing requirements worksheet, using the format in Exhibit 9-4. Compute the number ofFTEs required to fill the Operating Room staffing positions.