QUESTION TWO: CASH BUDGETING Tonsley Hospital provides a wide range of hospital services. Actual billings for the first six months of the year, made in the month of service are as follows: Month January February March Amount $4,400,000 4,400,000 4,500,000 4,500,000 5,000,000 April May June 5,000,000 Eighty per cent of the Tonsley Hospital's billings are made to health funds such as Medicare and private health insurance companies. The remaining twenty per cent of billings are made directly to patients. Historical patterns of billing receipts are as follows. Health Direct fund patient billings billings (per cent) (per cent) Collected during the month of service 50 20 Collected during the month following service Collected during the second month following service Uncollectable 20 40 20 30 10 10 The billing and collection patterns identified above were replicated during the first six months of this year. There is no reason to suspect those patterns will not continue during the last six months of the year. Estimated billings for the last six months of the year are listed below. Month Estimated amount July August September October November December $4,500,000 5,000,000 5,500,000 5,700,000 5,800,000 5,500,000 The actual purchases of the past three months and the planned purchases for the last six months of this year are presented in the following schedule. Month April May June Actual amount $1,100,000 1,200,000 1,200,000 Month July August September October November December Planned amount $1,250,000 1,500,000 1,850,000 1,950,000 2,250,000 1,750,000 Additional information i. ii. iii. iv. V. vi. All purchases are on credit and accounts payable are paid in the month following the purchase. Salaries for the remainder of the year are expected to be $1,500,000 per month plus twenty per cent of the month's billings. Salaries are paid in the month of service. The hospital's monthly depreciation charges amount to $125,000. The hospital incurs interest expense of $150,000 per month and makes interest payments on the last day of the quarter (i.e. 31 March, 30 June, 30 September and 31 December). Investment income is $175,000 per month, which is collected one month in arrears. The hospital has a cash balance of $300,000 on 1 July. vii. The hospital has a policy of maintaining a minimum end-of-month cash balance equal to ten percent of the current month's purchases. viii. The hospital uses a calendar year (1 January to 31 December) reporting period. Required Prepare a cash budget for the last half of the year (i.e. 1 July to 31 December) that includes. - Budgeted cash receipts broken down by month, by quarter and for the half year. - Budgeted cash payments broken down by month, by quarter and for the half [Total = year. = 14 Marks]