P21-38. Budgeting Purchases, Revenues, Expenses, and Cash in a Service Organizat
ID: 2599134 • Letter: P
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P21-38. Budgeting Purchases, Revenues, Expenses, and Cash in a Service Organization LO3 Wauconda Medical Center is located in a summer resort community. During the summer months the center operates an outpatient clinic for the treatment of minor injuries and illnesses. The clinic is administered as a separate department within the hospital. It has its own staff and maintains its own financial records. All patients requiring extensive or intensive care are referred to other hos pital departments An analysis of past operating data for the out-patient clinic reveals the following: - Staff: Seven full-time employees with total monthly salaries of $56,000. On a monthly basis, one additional staff member is hired for every 500 budgeted patient visits in excess of 3,000, at a cost of $5,000 per month. Facilities: Monthly facility costs, including depreciation of $3,000, total $10,000. . Supplies: The supplies expense averages $12 per patient visit. The center maintains an end-of- month supplies inventory equal to ten percent of the predicted needs of the following month, with a minimum ending inventory of $3,000, which is also the desired inventory at the end of August. Additional variable patient costs, such as medications, are charged directly to the patient by Payments: All staff and maintenance expenses are paid in the month the cost is incurrent. Collections: The average bill or services rendered is $80. Of the total bills, 40 percent are paid the hospital pharmacy Supplies are purchased at cost directly from the hospital with an immediate transfer of cash from the clinic cash account to the hospital cash account. in cash at the time the service is rendered, 10 percent are never paid, and the remaining 50 percent are covered by insurance. In the past, insurance companies have disallowed 20 percent of the claims filed and paid the balance two months after services are rendered. . May 30 status: At the end of May, the clinic had $14,000 in cash and supplies costing $4,000. Budgeted patient visits for next summer are as follows: Month Patient visits June uy. August ce 2,500 . 3,500 40 REQUIRED For the Wauconda Outpaticnt Clinie: a. Prepare a supplies purchases budget for June. July, and August, with a total column. b. Prepare a revenue and expense budget for June, July, and August with a total column. c. Prepare a csh budget for June, July and August with a total column. (Hint: See requirement d) d. Explain why you were unable to develop a feasible cash budget and make any appropriate recommendations for management's consideration.Explanation / Answer
PURCHASE BUDGET ($)
a)
JUNE
JULY
AUG
TOTAL
Opening Inventory
4000
4200
4800
PURCHASES
30200
42,600
48,600
Closing Inventory
4200
4800
5400
ASSUMED
30000
42000
48000
b) REVENUE BUDGET & EXPENSE BUDGET
SALES
Patient visits
( $80 per visit )
2500
3500
4000
10000
SALES VALUE $
200,000
280,000
320,000
800,000
40%
50%
Immediate cash
$80,000
112,000
128,000
448000
Paid by insurance
100,000 X.8
=
80000
140,000
160,000
TOTAL
EXPENSES
SUPPLIES
30,000
42600
48600
SALARIES
40,000
53,000
58,000
FACILITIES
7000
7000
7000
77000
102600
113600
c) CASH BUDGET
CASH INFLOWS
80000
112000
208,000
CASH OUTFLOWS
-77000
-102600
-113600
NET
3000
9,400
94400
BALANCE B/F
14000
17000
26400
BALANCE C/F
17000
26400
120800
d)
FIGURES FOR FUTURE MONTHS SEP, OCT SHOULD BE GIVEN TO PROJECT SALES/ EXPENSES AS SUPPLIES CLOSING. ALSO FIGURES FOR TWO PREVIOUS TO CURRENT MONTHS MUST BE GIVEN TO FIND OUT REALSIATION FROM INSURANCE
PURCHASE BUDGET ($)
a)
JUNE
JULY
AUG
TOTAL
Opening Inventory
4000
4200
4800
PURCHASES
30200
42,600
48,600
Closing Inventory
4200
4800
5400
ASSUMED
30000
42000
48000
b) REVENUE BUDGET & EXPENSE BUDGET
SALES
Patient visits
( $80 per visit )
2500
3500
4000
10000
SALES VALUE $
200,000
280,000
320,000
800,000
40%
50%
Immediate cash
$80,000
112,000
128,000
448000
Paid by insurance
100,000 X.8
=
80000
140,000
160,000
TOTAL
EXPENSES
SUPPLIES
30,000
42600
48600
SALARIES
40,000
53,000
58,000
FACILITIES
7000
7000
7000
77000
102600
113600
c) CASH BUDGET
CASH INFLOWS
80000
112000
208,000
CASH OUTFLOWS
-77000
-102600
-113600
NET
3000
9,400
94400
BALANCE B/F
14000
17000
26400
BALANCE C/F
17000
26400
120800
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