Chapter 8, Problem 4TIF

Evaluating the budgeting system in a service company

Children’s Hospital of the King’s Daughters Health System in Norfolk, Virginia, introduced a new budgeting method that allowed the hospital’s annual plan to be updated for changes in operating plans. For example, if the budget was based on 400 patient days (number of patients × number of days in the hospital) and the actual count rose to 450 patient days, the variable costs of staffing, lab work, and medication costs could be adjusted to reflect this change. The budget manager stated, “I work with hospital directors to turn data into meaningful information and effect change before the month ends.”

1. a. What budgeting methods are being used under the new approach?
2. b. Why are these methods superior to the former approaches?