Fairfax Agency Staffing and Operating Budgets

The Fairfax Treatment Agency delivers the following program services:
• Alcoholic rehabilitation
• Drug-addict treatment
• Basic health care services, and
• Counseling and suicide prevention

The Agency's FY 200X staffing and operating data are as follows:

Professional salaries:
6 physicians  $100,000 $600,000
19 psychologists  $50,000 950,000
23 treatment technicians  $25,000 575,000 $2,125,000
Medical supplies 300,000
Administrative salaries, rent, utilities, and related costs 1,275,000
Total $3,700,000

The agency director needs to know the cost of each program as a basis for planning and budgeting decisions. She specifically needs to decide on whether to provide funds to alcoholic rehabilitation or drug-addict treatment. She has determined that if the cost to treat a drug-addict patient for a year is more than 15% higher than the cost to treat an alcoholic rehabilitation patient for a year, the alcohol program would receive additional funds. Otherwise the drug-addict program would receive additional funds.

Personnel assigned to individual programs are as follows:

Alcohol Drug - Basic
Rehab Addict Health Counseling Total
Physicians 2 4 6
Psychologists 6 4 9 19
Technicians 4 6 4 9 23

Costs of medical supplies are allocated to programs on the basis of physician-hours spent in each program. Administrative costs are allocated on the basis of direct labor cost of each program (i.e., the total cost of professional salaries for each program).

Eighty patients are in residence in the alcohol rehabilitation program, each staying about six months, equating to 40 patient-years of service delivery in the drug and alcohol program. 100 patients are involved in the drug addict program for about six months each, equating to 50 patient-years of service delivery in the drug program.

Part B

Suppose the director learned the following additional information concerning operations:

1. Consumption of medical supplies depends on the number of patients in each department and the length of their stays (that is, patient-years).

2. Administrative costs consist of the following:
-Rent and clinic maintenance $200,000
-Administrative costs to manage
patient charts, food, laundry 800,000
-Laboratory services 275,000
-Total $1,275,000

3. Other information about individual departments:

Alcohol Drug Basic
Rehab Addict Health Counseling Total
Square feet space occupied
by each program 9,000 9,000 10,000 12,000 40,000
Patient-years of service 40 50 50 60 200
Number of patients 80 100 200 120 500
Number of laboratory tests 400 1,400 3,000 700 5,500


Given this additional information as well as the information provided in Part A:

1. Complete the following table to determine the cost of each program and the cost per patient-year of the alcohol rehabilitation and drug-addict treatment programs.

Cost Item Alcohol Rehab Drug Addict Treatment Basic Health Counseling Total Cost

Medical supplies

Rent and clinic maintenance
Costs for patient charts, food & laundry
Laboratory Services
Total Costs $3,700,000
Patient years 40 50 50 60
Cost/patient year

2. Based on your analysis, should the director allocate additional funds to the drug program or to the alcohol program?

3. Compare and contrast the results you determined in Part A and in Part B.

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