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CHAPTER 15 UHFM 7TH EDITION UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 2 James Buchanan Orthotics and Prosthetics
CHAPTER 15 UHFM 7TH EDITION
UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT | |||||||||
Chapter 15 -- Revenue Cycle and Current Accounts Management | |||||||||
PROBLEM 2 | |||||||||
James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. | |||||||||
The company has produced sales estimates, and these appear in the worksheet below. Collection | |||||||||
estimates are as follows: 10 percent within the month of sale, 75 percent in the month following | |||||||||
the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also | |||||||||
appear in the worksheet below. Payments for labor and supplies are typically made during the | |||||||||
month following the one in which these costs have been incurred. General and administrative | |||||||||
salaries will amount to approximately $27,000 a month; lease payments under long-term lease | |||||||||
contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous | |||||||||
expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September | |||||||||
and December; and a progress payment of $180,000 on a new building must be paid in October. | |||||||||
Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be | |||||||||
maintained throughout the cash budget period. What loan will be the company require in | |||||||||
October? | |||||||||
ANSWER | |||||||||
May | June | July | August | September | October | November | December | January | |
Collections worksheet: | |||||||||
Billed charges | $180,000 | $180,000 | $360,000 | $540,000 | $720,000 | $360,000 | $360,000 | $90,000 | $180,000 |
Collections | |||||||||
Within 30 days | |||||||||
30-60 days | |||||||||
60-90 days | |||||||||
Total collections | |||||||||
Supplies worksheet: | |||||||||
Amount of labor and supplies | $90,000 | $90,000 | $126,000 | $882,000 | $306,000 | $234,000 | $162,000 | $90,000 | |
Payments made for labor and supplies | |||||||||
Net cash gain (loss): | |||||||||
Total collections | |||||||||
Total purchases | |||||||||
General and administrative salaries | |||||||||
Lease payments | |||||||||
Miscellaneous expenses | |||||||||
Taxes | |||||||||
Progress payment | |||||||||
Total payments | |||||||||
Net cash gain/loss | |||||||||
Borrowing/surplus summary: | |||||||||
Cash at beginning with no borrowing | |||||||||
Cash at end with no borrowing | |||||||||
Target cash balance (given) | |||||||||
Cumulative surplus cash / loan balance |
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