Case 2: Northwest Medical Clinic

Northwest Medical Clinics (NMC) consists of five family practice physicians. Clinic volume is measured in the number of patient visits. The budgeted workload for selected periods is as follows:

		3rd Quarter
	June	July	August	Sept	Oct
# of physicians	5	5	5	5	5
Office days per month	20	24	20	24	20
Hours per day for patients	10	10	8	8	10
Average # of patient visits per hour	2	2	2	3	3
Total patient visits	2,000	2,400	1,600	2,880	3,000

The average charge for a clinic visit is $500. Of the $500, the patient pays $25 at the time of the visit (co-pay) and the remaining $475 is billed to the patients insurance company (on account). Historically, insurance billings have been collected as follows: Month of billing-No collections, 1^st month after billing-70% collected, 2^nd month after billing-20% collected, and 3^rd month after billing-10% collected. No accounts are considered uncollectible because NMC operates in a perfect world.

NMC maintains an inventory of medical supplies. The supplies are purchased in sterile packages from an outside vendor. The cost of each sterile pack is $175.00. Furthermore, inventory levels are maintained at 25% of next months budgeted patient visits. All inventory purchases are made on credit (addition to accounts payable). Cash payments are made as follows: Month of purchase-40% paid, 1^st month after purchase-50% paid, and 2^nd month after purchase-10% paid.

Other information:

Total monthly operating expenses (non-inventory expenses) are estimated to be $470,000.

Total monthly operating expenses include depreciation of $85,000.

A note payable of $100,000 was repaid on September 30. The note required monthly interest payments at an annual rate of 15%.

No dividends are paid because NMC is a non-profit privately held organization.

See the September 1 Balance Sheet and Income Statement

Required:

Prepare all the necessary budgets for NMC for the third quarter, including:

Sales Budget

Schedule of Cash Collections

Purchases Budget

Schedule of Cash Disbursements

Optional Operating Expense Budget/Schedule of Non-Inventory Cash Disbursements*

Cash Budget

Income Statement

Balance Sheet

Please label each budget clearly. Budgets that cannot be identified will not be graded. Also, please submit your answers in a word or PDF file. If you are using Excel, you can either copy and paste your answers into a word document, or you can print your Excel workbook as a PDF. Please check that your answers are legible. Answers that are not legible will not be graded.

Note: Excel is not required to complete this case. However, you will find it to be easier if you have created a linked Excel workbook to answer Requirement 1.

*Hint: You may omit this budget, but I suggest you include it to facilitate preparation of the cash budget. Note that this budget does not follow from Garrison 16e. I suggest you use the Selling & Administrative Budget as a template, and use this budget to show both total operating expenses and cash paid for operating expenses.

Budgeted Financial Statements

Northwest Medical Clinic Budgeted Balance Sheet
	Balance Sept 1	Balance Sept 30
Cash	77,600
Accounts receivable	1,197,000
Inventory	126,000
Property, plant & equip	1,816,500
	3,217,100
Accounts payable	240,100
Long-term debt (LTD)	100,000
Common stock	1,500,000
Retained earnings	1,377,000
Current income
	3,217,100
Northwest Medical Clinic Budgeted Income Statement For the Quarter Ended September 30
Patient revenue
Cost of medical supplies
Gross margin
Other expenses
Depreciation
Interest
Net income