Assume you are the financial director of a clinic that is a part of an organizat
ID: 2665096 • Letter: A
Question
Assume you are the financial director of a clinic that is a part of an organization named Getwell Clinics Incorporated. Your clinic—named after you—serves a suburban community with a population of about 24,000, of which 25% are expected to become patients of the clinic. Each patient is expected to average five visits per year. Assume that visits occur evenly throughout the year. The average physician’s salary is $11,000 per month. The current practice is fee-for-service and includes Medicare and nonMedicare patients. The clinic has been approached by several HMOs to provide services to their enrollees, but the board of directors has decided to defer participation until year 2015.
After adjustments and allowances, average charges are $50 per visit. You believe that patient receivables are too high. You expect to improve collections, resulting in a balance of $220,000 patient receivables at the end of the year.
The flexible budget for operating costs for the clinic is as follows:
Operating Costs
Variable Expenses per Visit Fixed Expenses per Month
Nurses’ salaries 0 $18,000
Administrative and technical salaries 0 $19,000
Medical supplies $6.00 0
Rent 0 $4,000
Service bureau for medical and financial records $1.00 $2,000
Other operating expenses $3.00 $6,000
Planned purchases of medical supplies are $16,000 per month. Supplies are paid in the month following purchase. Service bureau expenses are paid in the month following service. All other expenses are paid in the month of incurrence.
During year 2015, your clinic plans to purchase $80,000 worth of equipment, which will depreciate on the straight-line basis over 5 years. A $75,000 line of credit has been arranged at the bank if needed. Assume a desired minimum cash balance of $10,000. You may assume that interest on any amounts borrowed is already considered in other operating expenses.
The statement of financial position at the end of 2015 follows:
Your Clinic - December 31, 2015
Assets
Cash $20,000
Patient Receivables 240,000
Supplies 8,000
Total $268,000
Equities
Accounts Payable: Supplies $6,000
Accounts Payable: Service Bureau 4,000
Total Liabilities $10,000
Partners’ Equity 258,000
Total Equities $268,000
• Propose a new service or product to be implemented. Cost will be $80,000 for equipment as described above. Write a proposal that includes the proposed budget for the next 6 years. Your proposal must
o include your proposed budget as submitted to your Learning Team.
o include your evaluation form for each of your team members including two positive comments and two suggestions for improvement.
o consider the three principal benchmarks referenced on p. 105 (Ch. 13) of Accounting Fundamentals; explain which benchmarking data you anticipate being the best approach to evaluate your proposed budget and why.
Explanation / Answer
Getwell Clinic Projected income statement for 2015 Sales 24000*0.25*5*50 1500000 Less variable cost Medical supplies 24000*0.25*5*6 180000 Service bureau 24000*0.25*5*1 30000 other expenses 24000*0.25*5*3 90000 -300000 Contribution margin 1200000 Physician salary 11000*12 132000 Nurses Salary 18000*12 216000 Techn and Admin salary 19000*12 228000 Rent 4000*12 48000 Other expenses 6000*12 72000 Service bureau 2000*12 24000 Depreciation 80000/5 16000 -736000 Net profit 464000 Getwell Clinic Projected cash flow statement for 2015 2015 Cash collection Patient service revenue 1500000+240000-220000 1520000 less payments Equipment purchased 80000 Medical supplies 6000+192000-16000 182000 Service bureau 30000+24000+4000-4500 53500 other expenses 90000 Physician salary 11000*12 132000 Nurses Salary 18000*12 216000 Techn and Admin salary 19000*12 228000 Rent 4000*12 48000 Other expenses 6000*12 72000 Total payments 1101500 Surplus / Deficit 418500 opening balance 20000 Closing balance 438500 Getwell Clinic Projected Balance Sheet for 2015 2014 2015 Assets Cash 20000 438500 Patient Receivable 240000 220000 32 Supplies 8000 20000 Equipment 80000-16000 64000 Total assets 268000 742500 liabilities Accounts payable supplies 6000 16000 Accounts Payable bureau service 4000 4500 total liabilities 10000 20500 Equity 258000 722000 Total liabilities and equity 268000 742500 There is no enough data so the comparison may be made with competitors or industrial average. However the organization history tells that it has enough equity to invest in the project and its financial position seems to be attractive as the financial ratios such as current ratio, debt to total assets ratio and debt to equity ratios are very attractive. Strategic Bench mark seems to be more appropriate as it covers strategic action and organizational change
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