Pilot Paper

Hello,

how were the revenue, variable costs and fixed costs figures calculated for the number 1 question (Westamber Hospital) of the Pilot paper, December 2006 which on ACCA’s website, the past exam question?

The information on the question is as folows:

The Westamber Hospital (‘Westamber’), which is partially government-funded, specialises in the provision of ear,
nose and throat operations for patients in Zonderland. Its mission statement states that the hospital ‘is committed to
providing high quality healthcare to all patients’. Westamber provides treatment to private fee-paying patients as well
as to patients who are funded by the government.
Relevant operating data for Westamber for the year ended 30 June 2006 is as follows:
(1) The budgeted mix of operations
Type of operation % of total operations
Ear 30
Nose 30
Throat 40
(2) Fees (budget and actual) payable to Westamber in respect of each patient who received treatment from the
hospital
Fee payable by private patients Fee payable by government
Type of operation: ($) ($)
Ear 3,000 2,000
Nose 4,000 3,000
Throat 5,000 4,000
It was budgeted that 50% of patients (for each type of operation) would have the cost of their operations funded by
the government because under existing legislation they earned what the government defined as a low income.
(3) Budgeted costs for the year based on 100% capacity utilisation
$000 Variable cost (%) Fixed cost (%)
Surgical 35,400 25 75
Nursing 38,000 30 70
Depreciation 31,700 – 100
Administration 33,250 – 100
Sundry 35,750 20 80
Variable surgical costs include a total amount of $1,000,000 in respect of operations undertaken on an emergency
basis.
(4) Actual costs incurred during the year
Variable costs ($000) Fixed costs ($000)
Surgical 8,284 26,550
Nursing 2,224 25,600
Depreciation 21,700
Administration 23,412
Sundry 1,116 24,912
Note: (i) $800,000 of the variable surgical costs related to the provision of emergency operations.
(ii) The proportion of emergency operations as a percentage of total operations was as per budget.
(5) Westamber had no loan finance during the year.
(6) A recently qualified accountant employed by Westamber has stated that “it is obvious that the mix of government
to private patients mix is the key determinant of profitability. Next year it looks as if demand for total operations
will exceed our available capacity and therefore we should give priority to private fee-paying patients as we receive
more fees from them for each type of operation. It is as simple as that since there aren’t any ethical issues to be
considered”.
(7) Other statistics relating to Westamber (all stated on an ACTUAL basis):
Capacity utilisation (%): 80%
Patient mix (%) for each type of operation:
Government-funded patients 75%
Privately-funded patients 25%
Operation mix (%):
Ear 35%
Nose 30%
Throat 35%
Eastgreen Hospital
Eastgreen Hospital (‘Eastgreen’), is a privately owned hospital which also specialises in the provision of ear, nose
and throat operations. All of its patients are responsible for the payment of their own fees. Eastgreen does not
undertake operations on an emergency basis.
The summary income statement for Eastgreen on an actual basis was as follows:
$000
Fee income 36,000
Costs:
Surgery & nursing 25,000
Depreciation 3,400
Loan interest 500
Administration and sundry 5,100
Total costs 34,000
Net profit 2,000
(i) Eastgreen operates comparable accounting policies to those of Westamber.
(ii) The income of Eastgreen is derived from the provision of an annual healthcare scheme. Each patient pays
$100 per month under a fixed term contract of three years. All contracts were renewed on 1 July 2005. There
were 30,000 contracts in existence throughout the year. Note: Contracts can only be entered into on 1 July
in each year.
Each hospital is comprised of 15 wards, each of which can accommodate eight patients. The average patient
stay in both hospitals was three days. Each hospital is open for 365 days per annum.
Required:
(a) Prepare a statement, in columnar format, which shows comparable actual and budgeted results for Westamber
for the year ended 30 June 2006. (14 marks)

I saw the solution but could not see how they came up with the answer. workings were not shown.

Thanks,its now clear.

Thanks. I also confused before. Now getting clear. Thanks.

Hi all

in the question 3 part b, the answer is:

An analysis of the management team attitudes may be viewed as follows:
(i) A fall of 12% from the current level would result in a unit cost of £41.21 x 88% = £36.26. However, the combined probability of this cost level being achieved is only 18% (this can be abstracted from the probability matrix). This might,
therefore, be seen as a ‘risk seeking’ stance if management decide to proceed with the re-design.
(ii) Other members of the management team are not willing to proceed with the re-design if it might lead to a cost increase from the current level. There is a 32% combined probability that the changes could result in a unit cost greater than the current level of £41.21. But there is also a 66% likelihood that the unit cost of product A could be less than the current level. This is a ‘risk averse’ stance since management are not swayed by the 66% likelihood that unit costs may fall.
(iii) The expected value solution (£39.84) is the weighted average view i.e. the sum of each possible value of unit cost x the
combined probability of each occurring. This may be viewed as a ‘risk neutral’ view of the likely unit cost. In this case
since it is less than the current value of £41.21 management would proceed with the redesign of product A.

can anybody explain to me why they can calculate 18%, 32% and 66% from the table?

thanks alot

pls go ahead with your choice, finish P4 or all P4 and p5