this is the lecture that goes with the discussionHSA525 Week 4.docx

this is the lecture that goes with the discussion
HSA525 Week 4, Lecture 1 Script: Understanding Inventory and
Depreciation Concepts
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1
Professor Quan greets students and begins lecture.
HSA525_4_1_1_ProfQuan-1
: Hello everyone….welcome back to class. During this lecture,
we will focus on inventory.
: Today's healthcare systems face many daily challenges such
asdelivering quality care to patients, little or no inventory
visibility, diverse patient care processes, and complex payment
structures…all spanning geographically in dispersed facilities.
Given the challenging nature of healthcare delivery and
materials management within the healthcare organization,
managing inventory efficiently and effectively is a critical
aspect of handling these challenges.
: Inventory affects both the organization’s balance sheet as well
as income statements. When inventory is purchased, it’s
classified as a short term asset on the balance sheet, and when
consumed, it becomes an expense or cost of patient care. Every
organization constantly strives to maintain optimum inventory
to be able to meet its requirements and avoid over or under
inventory that can impact profitability and cash flow.

: A very important aspect of managing inventory involves
projecting the appropriate type and amount of supplies. This
process of inventory management can be challenging for three
basic reasons: possible lag time or the time it takes to order and
receive supplies, uncertainty related to patient demands, and
product discontinuations.
HSA525_4_1_1_Sophia-1
: Professor, I understand lag time and discontinuations, but do
not fully understand how uncertainty related to patient demands
affects inventory management. Can you provide an example?
: Sure, uncertainty is affected by the fluctuations with volume
and the patient type. For example, if the supply is something
that is used in life-saving emergencies, the manager will have a
high level of stock to ensure that the item is always available. If
the item is seldom used, the manager will maintain a very low
stock or no stock at all.
HSA525_4_1_1_Tyler-1
: What are the specific effects of inventory on costs?
: Inventory is considered a non-productive asset. It does not
grow or produce income. It also creates a storage cost,
insurance cost, and a purchase cost.
HSA525_4_1_1_Lauren-1
: Professor, can you explain cost of goods sold, particularly as
it relates to healthcare?

:
Certainly, the cost of goods sold is the direct costs incurred in
the production of the goods sold by a company. The cost of
goods sold includes the cost of the materials and direct labor
costs. It appears on the income statement and can be deducted
from revenue to calculate a company’s gross margin.
:
To make it applicable to healthcare, I will use the example of a
patient who is being cared for in a hospital. The patient accrues
costs by virtue of occupying a hospital bed and receiving
services.
:
Therefore, the patient is considered part of the work in process
inventory. Upon becoming discharge, the patient is considered a
finished good. Consequently, the accumulated costs become part
of cost of goods sold.
Slide 2
Scene 2
Professor Quan lectures about FIFO, LIFO and Weighted
Average.
: Costs related to inventory are found in two places on the
healthcare organization’s financial statements. On the balance
sheet, inventory is listed as a current asset. When the inventory
is consumed, it appears as an expense (or cost of patient care)
on the organization’s income statement.
: One of the most important inventory functions of the manager
is inventory valuation, or the value at which the inventory is
carried on the balance sheet. Common methods used in valuing

inventory include FIFO, LIFO, and Weighted Average Cost.
: FIFO refers to first in, first out…FIFO assumes that as -
inventory is acquired, the older inventory is consumed first so
that inventory is valued at the more recent cost.
: LIFO or last in, last out, on the other hand makes the basic
assumption that the last item put into inventory is the first item
taken out of inventory so that inventory is valued at an early
costs.
:
Professor, what would be the logic of LIFO…it stands to reason
that the first items acquired should be the first items used?
: LIFO uses cost related to inventory of the earliest purchases.
The total cost of inventory is determined by multiplying the unit
cost of the oldest items in inventory by the number of units in
inventory.
: There are tax advantages to the LIFO method.
It defers paying taxes on cost escalation due to inflation. In a
period of rising prices or inflation, LIFO will result in a larger
cost of sales (patient care) deduction which reduces taxable
income and taxes paid. Paying less current tax means more cash
to run and grow the business.
:

So, what are the advantages of using FIFO?
: FIFO, contrary to LIFO, produces an inventory valuation on
the most current cost. The total cost of inventory is determined
by multiplying the unit cost of the newest items in inventory by
the number of units in inventory.
: Under the FIFO method, the value of inventory reflects the
actual price paid.
The other method for discussion includes weighted average.
Weighted average determines the average cost of items placed
in inventory then multiplies the average cost by the number of
units in inventory.
Slide 3
Scene 3
Professor Quan begins to explain each method by going over an
example.
(Prof. Quan approaches the whiteboard and begins to explain
and example using a chart of information).
:
Let’s take a closer look at each inventory costing method.
Let’s assume Horizon’s central billing office purchased
magnetic storage disks on several dates throughout the year.
You can follow along using the table on the screen.

:
The beginning balance on January 1
st
was 10 units at a price of $15 totaling $150.
Then on March 1
st
, 30 units were purchased at $14 each totaling $420.
On May 1
st
40 more units were purchased for $14 each totaling $560.
Then on July 1
st
an additional 10 units were purchased for $13 each totaling
$130.
On September 1
st
, Horizon purchased 20 units for $12 each totaling $240.
Finally on November 1
st
10 more units were purchased for $12 each totaling $120
dollars.
:
The ending inventory on December 31
st
totaled 120 with a total purchase price of $1,620.

:
Determining the ending cost of inventory helps the manager to
meet anticipated patient demand for supplies, communicate
demand information to the supply chain, and enables the
manager to hedge against price increases. The prudent manager
also uses this information to take advantage of order cycles and
take proactive steps to avoid stock-outs.
:
Now let’s calculate using FIFO, LIFO, and weighted average to
find the ending cost of inventory.
Slide 4
Scene 4
Professor Quan goes over the example and uses FIFO, LIFO,
and weighted average
:
Using the FIFO method, let’s compute ending inventory costs….
: Calculate FIFO inventory costs by assuming that every item
sold came out of the first-purchased inventory. First, we
consider the ending inventory of the most recent 35 disks,
which has purchase dates of November 1st, September 1st, and
July 1st.
We are considering only 35 disks, which was established as
ending inventory on December 31.

: If you refer to the table on the screen you will see that on
November 1
st
10 units were purchased for $120 ($12 each); September 1
st
20 units were purchased for $240 ($12 each); and July 1
st
costs we apply 5 of the 10 units for $65 ($13 each).
The ending inventory of 35 units has an ending inventory cost
of $425 or $12.14 per disk.
:
Professor, I am not sure why we only considered 5 units from
July, please explain.
: Remember, that we have an ending inventory of 35 units. In
order to apply FIFO, we have to take into account that FIFO
produces inventory for the newest items. Therefore, the items
purchased most recently in November, September, and July
would be appropriate in our calculations. The ending inventory
was 35 units…Horizon purchased 10 units in November, 20
units in September, and 5 of the units purchased in July would
equal the 35 units in ending inventory.
:
Ok, thanks.
That makes sense now.

: Now let’s compute using LIFO.
With this method you would simply consider the reverse, or the
last items put into inventory.
: So this would be January 1
st
costs of $150 for the 10 units at $15 each and March 1
st
costs of $350 for 25 units at $14 each.
For March we only applied 25 of the 30 units since the ending
inventory is 35.
So with LIFO the ending inventory costs equal $500 or $14.29
per disk.
: To compute the weighted average, simply divide total costs by
total units, then multiply by ending inventory.
So, $1620 divided by 120 x 35 equals
$472.50
Slide 5
Check Your Understanding
Slide 6
Scene 5
Professor Quan explains the concept of depreciation.

: We will now shift our attention to the concept of depreciation,
which is the allowance for wear and tear on equipment and
machinery.
: Depreciation expense spreads the cost of a fixed asset over the
useful life of the asset. Depreciation not only affects the asset's
value as stated on the balance sheet, it also affects the amount
of reported earnings.
Depreciation indicates how much of an asset's value has been
“used up”.
: Accumulated Depreciation is considered a contra asset
account.
You may recall from our previous lecture that a contra asset is a
negative asset account that is designed to offset the balance in
the asset account with which it is paired.
Let’s consider three common methods of depreciating assets for
financial statement purposes.
:
Straight Line depreciation
is perhaps the simplest and most commonly used depreciation
method. Under the straight-line approach the annual
depreciation is calculated by dividing the depreciable base by
the service life.
:
Accelerated depreciation
is another common method in which larger amounts of

depreciation are taken in the beginning years of the life of an
asset and smaller amounts in later years.
:
So what is the advantage of taking larger amounts of
depreciation in the beginning?
:
The objective of this method, the accelerated depreciation
method is to defer taxes legally, thereby allowing funds to be
retained by a business to finance growth.
: A third method of computing depreciation is the
Units of Production method
.
In units of production method of depreciation, depreciation is
charged according to the actual usage of the asset. The higher
depreciation is charged when there is higher activity and less is
charged when there is low level of activity. Zero depreciation is
charged when the asset is idle for the whole period.
Slide 7
Slide 8
Scene 6
Summary

: This concludes our lecture for today. Are there any questions?
:
No questions….thanks, Professor
:
No questions….
:
No questions at this time…
HSA525 Week 4, Lecture 2 Script: Staffing: The Manager’s
Responsibility
Slide #
Scene/Interaction
Narration
Slide 1
Scene 1:
Introduction to lecture.
Prof. Quan begins to lecture in front of class
HSA525_4_2_1_ProfQuan-1:
Hello! Today our lecture will include a discussion on staffing.

One of the most important resources of any organization is its
people. In healthcare organizations workers are staffed to fill
shifts that operate 24 hours a day and seven days a week.
Managers have the responsibility of ensuring that shifts are
staffed adequately in order to provide optimal service levels.
Managers in healthcare organizations need to create an effective
staffing balance without overtaxing personnel resources.
Overstaffing results in increased labor costs and lost
productivity; while understaffing may have a significant impact
on the quality of patient care.
Healthcare managers often use one of two common approaches
to computing fulltime equivalent headcount.
These approaches are annualizing and scheduled-positioning.
Annualizing is used because employees are paid for more hours
than they are on duty, for instance, vacation days. So,
annualizing allows the full cost of the position to be computed
through a “burden” approach.
HSA525_4_2_1_Lauren-1:
Professor, can you explain what you mean by burdened?
Certainly….a burdened approach allows for the net hours

desired to be inflated, in order to arrive at the gross number of
paid hours necessary to obtain the desired number of net hours
on duty from the employee. In other words, annualized hours
are based on a system of scheduling that annualizes labor cost,
rather than direct hours worked on a weekly basis.
The employer calculates work hours annually taking into
account many different factors that may affect employee
schedules.
HSA525_4_2_1_Sophia-1:
So, what are the benefits of annualizing for the healthcare
organization?
It allows the employer to determine the full cost of a staff
member per year. This is important because the total cost of
staff is usually the bulk of the employer’s budget.
HSA525_4_2_1_Tyler-1:
When is schedule positioning most often used?
The schedule position method is often used when forecasting
new programs and services.
Another key difference between annualizing and scheduled
position is that non-productive time is inherently included in
the formula in annualizing. Non-productive time refers to the
paid-for time when the employee is not on duty. This would
include vacation and sick time.

The non-productive time differs from productive time as the
productive time represents the employee’s net hours on duty.
Managers use this information to determine their staffing needs.
Slide 2
Scene 2:
Prof Quan continues to lecture on staffing.
Goes over an example on the screen.
Managers must assess the number of employees required to fill
a position. Determining the number of Full Time Equivalents or
FTE helps to assess the current work activities with related time
and cost measures. As a result, a manager can better understand
the root causes of workload fluctuations, productivity gaps, and
workflow challenges.
The basic calculation for determining the number of FTEs
needed is workload hours divided by the working hours of 1
FTE within the organization.
HSA525_4_2_2_Tyler-1:
So, professor….what specifically constitutes an FTE when used
in annualizing?
An FTE for the purpose of annualizing is the equivalent of one
full-time employee, or two part time employees.
To demonstrate the calculations in the process of annualizing,
let’s consider the steps involved.

There are two basic steps in staffing calculations to annualize
positions. The first step involves the computing of the net paid
days worked. So, we would determine the number of paid
annual days. Then, we would subtract paid days not worked, for
instance, sick days. This would yield the net paid days worked.
The second step would require that we convert the net paid days
to a factor.
So, how do we convert net paid days to a factor?
To convert net paid days to a factor, we would simply consider
the total days in the business year divided by net paid days
worked. For instance, if the total days in the business year
equals 365 and the employee works five days per year, the
number of paid days per year would equal 261, as you would
subtract the two days off (2 times 52 weeks in a year) per week
from the number of days within the year.
In addition, we must subtract any days paid but not actually
worked, such as vacation, sick days, or holidays to determine
the net paid days worked.
Finally, we would divide the total number of days in the
business year by the net paid days worked to arrive at the
factor.

Which of the following statements are characteristics of
annualizing?
A. Annualizing allows for the full cost of the position to be
computed through a burden approach.
B. Annualizing creates a challenge in terms of determining the
actual costs of a staff member
C. Annualized hours are based on a weekly schedule
A.
Correct!
This statement is a characteristic of annualizing.
B.
Incorrect….Annualizing actually makes it easier to determine
actual costs of staff members
C.
Incorrect….Annualizing is based on the annual (or in some
cases, monthly) schedule as opposed to weekly schedule
Slide 4
Scene 3
Prof Quan in front of projector to explain example.
The other method of FTEs is through calculations by position.
Calculations by position is used in controlling, planning,

planning and decision making which are all key factors of
management.
Let’s go over an example of this approach ….One full time
employee works 40 hours per week. One eight-hour shift per
day times seven days per week equals 56 hours on duty.
Therefore, to cover seven days per week, or 56 hours requires
1.4 times a 40-hour employee, which is the equivalent of 56
hours divided by 40 hours which equals 1.4 FTEs.
HSA525_4_2_3_Tyler-1:
Would an example of staffing by position be projected staffing
for a new clinic?
Absolutely….that is precisely why this method is often used in
terms of planning
.
Does annualizing save the employer in terms of costs?
In some ways, it is considered a cost saving method. With
annualized hours, schedules can be shifted to have full-time
employees work longer shifts during peak times, thus saving
costs. But, it is important to note that an annualized work
schedule requires meticulous planning …if not carried out
correctly, it could prove to be cost prohibitive.
It is clear that the manager has a huge responsibility in terms of
staffing in order to ensure efficiency. Staffing is a little more

complicated than I initially thought.
The information provided today has really helped to put the
issue of staffing into better perspective for me…
HSA525_4_2_3_Tyler-2:
I would agree…we don’t often consider all of the factors that go
into determining the staffing needs of the organization.
Slide 5
Scene 4
Summary
This concludes our lecture on Staffing….are there any
questions?
No, I think that I have a better grasp on the issue of staffing and
how it impacts the role of the manager.
HSA525_4_2_4_Tyler-1:
No questions…
None at this time…thanks

this is the lecture that goes with the discussionHSA525 Week 4.docx

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