What does rule of thumb evaluation method mean? no matter how many times i read this, I get different answers..and how would I calculate this or what is the formula for the rule of thumb evaluation method???

I am supposed to compute this example:

Arcadia Hospital
Income Statement
YTD Dec 31, 2005
(Dollars in Millions)
Operating Revenues 2005 % of rev Budget Over/(Under)
Patient revenues 500 550
Allowance for doubtful accounts 13 14
Net patient revenues 488 536
Other Income:
Investments 75 60
Misc 5 0
Total Operating Revenue 568 100.00% 596

Operating expenses:
Wages 200 35.24% 180
Taxes & Benefits 75 13.22% 70
Temporary/Contract Labor 5 0.88% 0
Medical/surgical supplies 25 4.41% 30
Other misc supplies 5 0.88% 5
Dues/subscriptions 3 0.53% 3
Transcription expense 10 1.76% 15
Leases & rentals 50 8.81% 45
Malpractice Insurance 75 13.22% 70
Other Insurance 30 5.29% 32
Professional Fees 20 3.52% 20
Utilities 15 2.64% 10
Maintenance & Repairs 15 2.64% 10
Depreciation/Amortization 7 1.23% 7
Interest Expense 1 0.18% 1
Total Operating Expenses 536 94.45% 498

Net Income 32 5.55% 98

The rule of thumb evaluation method is a simple and quick way to estimate values or make rough assessments based on easily remembered or commonly used benchmarks. It is not a formal or precise method of evaluation but can provide a rough estimate or a starting point for further analysis.

In the example you provided, the rule of thumb evaluation method can be used to estimate the budgeted values for various line items based on the provided percentages. To calculate the budgeted values, you can use the following formula:

Budgeted Value = Actual Value / (% of Revenue)

For example, to calculate the budgeted value for Wages:

Budgeted Wages = $200 million / 35.24% = $567.04 million

Using the same formula, you can calculate the budgeted values for other operating expenses. However, please note that the rule of thumb method assumes that the relationship between the actual value and the percentage remains constant, which may not always be accurate.

Keep in mind that the rule of thumb method is a simplified approach and does not take into account specific factors or changes in circumstances. It is always advisable to conduct a more detailed analysis and consider other relevant factors for accurate evaluations.