Reference no: EM1315894

Computation of workers cost, supplies to be purchased and bad debt expenses.

The hospital expects to employ workers in the following departments:

	Radiology	Nursing	Administration	Total
Managers	$100,000	$200,000	$200,000	$500,000
Staff	1,900,000	4,200,000	300,000	6,400,000
Total	$2,000,000	$4,400,000	$500,000	$6,900,000

Supplies are expected to be purchased through-out the year for the departments, as follows:

	Total
Radiology	$360,000
Nursing	160,000
Administration	160,000
Total	$540,000

Assume that all supply use varies with the number of patients.

Denison Hospital currently pays rent on its buildings and equipment of $300,000 per year. Rent is expected to be unchanged next year. The rent is paid $75,000 each quarter.

To better serve its patients, Denison would like to buy $500,000 of new oncology equipment at the start of next year. It would be paid for immediately upon purchase. The equipment has a five-year life and would be expected to be used up evenly over that lifetime. Although the capital budget would normally include justification for why the equipment is needed, it is sufficient for our purposes to know that the capital budget for Denison is $500,000 and the equipment to be purchased has a five-year useful life. It will have no value left at the end of the five years. Denison charges the cost of its capital acquisitions on straight-line depreciation basis. That means that the cost is spread out over the useful life, with an equal share being charged as an expense, called depreciation expense, each year.

Calculate expected bad debt expenses on an accrual basis the coming year.