The Operating Budget: A Case Study: Denison Hospital

Capital In the operating budget, the organization prepares to include the costs of acquisition of items to assist in providing goods and services in more than one fiscal year. In the case of Denison, the organization considers a capital purchase of $500,000 in oncology equipment to better serve their patients. The purchase of the new equipment will be paid immediately, however, the equipment maintains a five-year life span and expected to be used evenly over that life time (Finkler et al., 2013). After the five-year life of the equipment, the value amounts to zero because the capital item charges as an expense on a straight-line depreciation—the cost of asset spread over the useful life (Hui, 2013). The following graph illustrates the depreciation expense of the oncology equipment purchased by Denison Hospital. Furthermore, the cash-flow demonstrates the monetary receipts and monetary expenses in a certain time period. The cash-flow budget greatly centers on viability, which relates to the organization’s generating enough cash to meet both short-term and long-term financial obligations to maintain their existence (Finkler et al., 2013). In essence, an organization generating more cash than using in their operations produces a more

The average cost maintains the full cost of the objective divided by the number of units of provided service while the marginal cost refer to the additional cost incurred as a result of providing one more service unit (Finkler et al., 2013). The fixed cost refrains from changing based on changes in volume of service units while variable cost, on the opposite end, varies in cost based on changes in volume of service units (Finkler et al.,