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Capital Equipment Justification

Capital Equipment Justification

Needs Assessment

With the increasing hip replacement service in our hospital from year to year I think it will be prudent for us to expand our facility so that we can capture the needs of all patients. Our brand is also associated with the provision of high quality services hence this will help us to continue attracting more customers through referrals. The increasing population of individuals having joint problems in the society requires the existence of sufficient facilities as well which can attend to their needs (Flynn, 2016). This way I feel that the expansion of our facility is a prudent idea since it will guarantee us sufficient customers.

Capital Cost Estimate

In order for us to build the hip replacement service line we should expand the operating room theatre by 2 OR rooms. The costs to be incurred during the expansion are the capital that we require for this process to be initiated. Expansion expenses will be in terms of purchase of operating tables, operating lights, video equipment, anaesthesia equipment, orthopaedic instrument sets, equipment shelves, radiology equipment, PPE for implant work and contingency costs. The total cost of these items will be $1,560,000 and this represents the capital which will be required for the expansion of our facility. The contingency costs have been estimated to be $200,000 and these costs will cater for unforeseen circumstances which might occur during the process of implementing this project. It is prudent to budget for contingency costs so that the project implementation cannot be delayed by shortage of funds arising from occurrence of expenses which had not been budgeted for (Eisen, 2011).

Additional and Ongoing Expenses Discussion

This project will off course come with some additional expenses apart from the existing ones. The additional expenses will be inform of operational costs, staffing costs and maintenance costs. The additional operational costs will be in form of capital depreciation, replacement of instrument sets, general M/S supplies that are non-billable, billable supplies, arthroscopy sets and anaesthesia supplies.The additional staffing costs will be in form of employment of additional technicians, OR nursing staff and the benefits to be given to these personals. The benefits will act as an incentive of ensuring that the employees offer high quality services which is associated with our brand (Otchere, 2013).

Finally the maintenance costs will be in form of maintaining the service contracts arthroscopy equipment, radiology equipment, anaesthesia equipment, OR lights and OR tables. The equipment should always be at perfect conditions so that they can provide the best services to our clients (Rajaee et al, 2014).It is also a statutory requirement that the equipment should always be in a perfect condition so that they do not compromise with the patients’ health. Additional expenses will amount toa total of $2,269,280. That is the additional operating expenses willbe$2,310,000, additional staffing costs will be $823,680 and finally the additional maintenance costs will be $135,600. These additional expenses will be recovered from the additional revenues that will be realised from the facility expansion. It is anticipated that the revenues will surpass the additional expenses by far thus enabling the enabling the project to have a payback period of 3 years as mentioned previously. The ongoing expenses are not anticipated to change and they will be catered by the ongoing hospital operations. 


Eisen, P. J. (2011). Accounting. Hauppauge, NY: Barron's Educational Series.

Flynn-Briggs, J. (2016). Common Complications in Orthopedics. Orthopedic Clinics of North America,47(2), Xix. doi:10.1016/j.ocl.2015.12.001

Otchere, I. (2013). Accounting and Finance at forty: a retrospective evaluation. Accounting and Finance,43(2), 211-230. doi:10.1111/1467-629x.00089




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