Healthcare Finance and Accounting


                                                          Part 1

MonthMonthly averageTimesProductivity Loss
2  293.75 
3  235 
4  176.25 
5  117.5 
6  58.75 
Total  1233.75 

The conversion costs mostly entail those costs required in the process of production to assist in converting the raw materials into finished goods. Production is a whole process requiring an input of labor and other materials of production (Lenk et al., 2016). In the Midwest community hospital, the total conversion costs consisted of: different upgrades of the system, the productivity loss costs, and staff training costs. The productivity loss in the hospital refers to the untimely completion of duties or projects due to avoidable and unavoidable circumstances. The menace is a concern, especially in the manufacturing sector. Employers and employees have to grapple with the problem with equal measures. Taking an example of the hospital where one of the staff members hired might fall sick, which derails completing and implementing ideas of the organization. The workers suffer from productivity loss due to a reduction of wages and loss of their job hobbies and not enough cash to spend with their families. Employers suffer the most when it comes to impacts of productivity loss. First, because the worker is not attending effectively to the duties, production levels decrease and in turn affects the sales volume of the company. The employers must find a striking balance for production in a bid to reduce losses of an inefficient production process. The cost of hiring and training of employees is costly to the firm. When an employee falls ill, the production process must continue to avoid huge costs incurred like impairment and depreciation of assets which are idle (Kunio, 2017).  In the community hospital, six months duration is applied in the calculation of the productivity loss. In a year, there are 4,000 patients discharged. The current period is six months; thus the 4000 discharges are divided by 2 to obtain 2,000. The two thousand represents the semiannual period. The above calculation assumed that in a year, three-quarters of the discharges are mostly due to surgical, which requires the patient to stay for a while in the hospital to monitor the progress of healing wounds. The surgical patients are treated as inpatients; thus the productivity loss calculated is due to inpatients surgical clients. Multiplying the value 0.75 by 2000, 1500 is obtained which represents surgical inpatient customers. On a monthly yield average, 1500 is divided by 6 to obtain 250. From the case study, calculating the productivity loss for the first month, we take 1.41 times multiplied by 250 to obtain roughly $353. The remaining five months, the productivity cost is obtained by reducing the average amount of $59 on a reducing balance basis. The amount of $ 59 is assumed as the total loss for each month the hospital will incur. Starting with the productivity loss of the first month at $353, the second month the value $353 is reduced by $59 to obtain $ 294. Third-month value is (294-59)=235. Fourth-month value is (235-59) =176. Fifth month value is (176-59) =117 and six month value is (117-59) =58. Adding the values from the first month that is $ 353 + $ 294 + $ 235 + $ 176 + $ 117 + $ 58 we obtain roughly $ 1233 which is an indication of the total loss incurred by the hospital for the six months.

The other productivity loss in the hospital is for outpatient clients. Taking the productivity loss for the first month at $ 15.28 while the average loss increase by $ 2.55, then we reduce the increasing value to obtain the accurate value for each month. Setting the calculation sequence, then second month value will be (15.28-2.55) = 12.73, third month (12.73-2.55) =10.18, fourth month (10.18-2.55) =7.63, fifth month (7.63-2.55) =5.08 and six month (5.08-2.55) =2.53. Adding the total outpatient costs for each of the months, a total of $ 53 is obtained which is equivalent to the productivity loss due to outpatient customers visiting the hospital. For proper accounting process within the hospital, keeping separate records for inpatient and outpatient records ensure no confusion occurs while keeping a complete set of records. In the preparation process of the final accounts like revenue and cost statement, it is prudent to combine both productivity costs.  For Mid-west community hospital, the total productivity cost for the total period of six months is (1233+53) =$1286. The $ 1286 will be transferred to the cost and revenue account with the value being debited, as it is a cost to the hospital.

                                                                       Part 2

System upgrades300,000
Inpatient productivity loss1233.75
Permanent staff training costs1200
Temporary staff training costs1500
Outpatient productivity loss53
Approximation value3
Total costs303,990

From the above calculations, the total cost is composed of different costs which add up to obtain the grand total. The costs include system upgrade costs, inpatient and outpatient productivity costs, and permanent and temporary staff training costs. Due to the issue of rounding and approximation to the nearest value, a value 3 is added to obtain the total projected costs for the year. The value is obtained from the various decimal figures ignored during calculation of the costs. The system upgrades in the hospital entail changes like accounting software, changes in the communication systems between doctors and upgrading the system processing speed. The training of employees is divided into two processes within the hospital. The temporary staffs are hired on a contract basis to assist on duties in case a permanent staff goes on leave or falls sick. The training they receive is limited due to little exposure to the hospital systems and processes. The training given to the permanent employees is detailed because of the possibility of a long stay in the hospital. In the capital budgeting process, when a new project is introduced, the initial cost must be outlined for the purposes of assessing the viability of the project. Midwest hospital has the plan of introducing new codes by developing the infrastructure of the hospital to accommodate the new plan. Assessment requires determination of the percentage revenue that will be required in the building of the ICD-10 project. Comparing the costs estimated with the projected revenues results in a ratio of 0.15% which is ideal and acceptable. The estimated upgrade costs from the case summary are $ 300,000. The inpatient and outpatient productivity loss amount to 1233.75+53 =1286.75. The permanent staff training costs are $1200 while the temporary training costs are $1500. The difference of (1500-1200) is due to the extra costs involved in training new temporary staffs as opposed to training regular permanent employees. Adding the above costs amounts to total costs of approximately 303,990 as indicated by the above excel calculation.


Kunio, S. (2017). TPM for workshop leaders (1st Ed): Japan: Routledge.

Lenk, E. J., Redekop, W. K., Luyendijk, M., Rijnsburger, A. J., & Severens, J. L. (2016). Productivity loss related to neglected tropical diseases eligible for preventive chemotherapy: a systematic literature review. PLoS neglected tropical diseases10(2), e0004397.