You are a managerial accountant that has been hired by the managing director of the Orthodontic Clinic to prepare the annual budget for 2021 and make recommendations for improving its operations.

The following information has been gathered about the clinic:

Balance sheet as at 31 December 2020:

Assets

Cash 156,000
Accounts Receivable 33,400

Orthodontic Equipment 650,000
Less: Accumulated Depreciation ( 120,000)

Total Assets $719,400

Liabilities & Shareholder Equity

Accounts Payable 59,400

Bank Loan 400,000

Retained Earnings 260,000

Total Liabilities & Shareholders’ Equity $719,400

The orthodontic clinic is located in Burleigh and operates out of rented premises. The following table outlines the operating costs for the year.

Utilities (Water & Electricity) $100 / month Paid quarterly

Insurance $5 500 / year Paid monthly

Lead Orthodontist Salary x1 $186 000 / year excluding on-cost Paid monthly

Graduate Orthodontist x 1 $90 000 / year excluding on-costs Paid monthly

Assistant Orthodontist x 2 $60 000 /year excluding on-costs Paid monthly

Administration Staff Wages $2 500/month Paid monthly

General Office Expenses $500 /month Paid monthly

Rent $1 000 /month Paid Monthly

Orthodontist supplies $400 / month Paid quarterly

Additional information

Salaries:

There are two orthodontists (one who is a graduate) and two assistant orthodontists. They are all paid an annual salary. It is estimated that their on-costs are 30% of their annual salary. They work 37.5 hours per week. Each appointment requires an orthodontist (lead or graduate) and an assistant.

Each employees allowance for annual leave, public holidays and sick leave amounts to 8 weeks per year. They are also given an allowance for non- billable time of 2 hours per week which includes professional development, department meetings and idle time.

Payments: It is estimated that 30% of all operating expenses will be paid in the month they are due and the remaining 70% will be paid in the following month.

Loan: The business has an interest only loan. The interest is paid monthly. The principle can be repaid at any time. The interest rate payable on the loan is 15% per annum.

Orthodontic Equipment: Depreciation on the Orthodontic equipment totals $20,000 for the year. Depreciation is recorded monthly.

Repairs and maintenance: The orthodontic equipment repairs and maintenance is estimated to be $700 each quarter payable in March, June, September, and December.

Cash collections: Twenty per cent (20%) of each month’s professional services revenue is collected during the month when the services are rendered and the remainder is collected the month following service.

Expected patient visits for 2021 are indicated in the table below. 75% of the visits are expected to be half-hour appointments and the remainder will be one hours visits:

                       300                                                350                                                320                                                300                                                350                                                370                                                380                                                400                                                400                                                400                                                400                                                400

The average fees received for the two (2) different types of appointments are $110 for half an hour (30 minutes) and $330 for one hour (60 minutes).

Expected Patients for 2021

January 300

February 350

March 320

April 300

May 350

June 370

July 380

August 400

September. 400

October 400

November. 400

December. 400

The average fees received for the two (2) different types of appointments are $110 for half an hour (30 minutes) and $330 for one hour (60 minutes).

Budget Schedules & Expected Outcomes

(15 marks, weighted 50% of assignment total)

Using the information provided, prepare the following operating and financial budgets for the twelve- month period from January 2021 to December 2021.

Operating Budgets:

1. Monthly Revenue

2. Labour Budget (including labour cost per appointment type)

3. Monthly Operating Expense Budget

Financial Budgets:

1. Budgeted Income Statement for the year ended 31 December 2021

2. Monthly Cash flow Budget for the year ended 31 December 2021

3. Budgeted Balance Sheet for the year ended 31 December 2021

Your budget spreadsheet must be submitted in Excel Format (not as an appendix in your WORD document). The first worksheet should contain your raw/input data and assumptions from this assignment overview sheet. All future worksheets should be linked to this data. Show all calculations and use Excel functions where possible. While you should use examples in your text as a guide, the key to using spreadsheets is that they are structured so that others can use them and follow the flow of information without difficulty.

Analysis & Report to Managing Directors of Orthodontic Clinic

(15 marks, 50% of assignment total)

Write a report (Maximum 1,500 words, 10% (+/-) will be accepted with no penalty) for the managing director of the orthodontic clinic. The report should include:

• an overview of the expected results for the 2021 year including total sales, operating expenses and expected cash position;

• a cost-volume-profit (CVP) analysis to indicate the breakeven point (in patients and revenue) and provide recommendations regarding how to improve the current margin of safety.

• an analysis of the business operations (i.e. current incomes and expenses) and recommendations regarding how to improve the profitability of the orthodontic clinic. Use industry data (e.g. market rate for salaries) to support any recommendations for changes.

• Use visual aids such as tables and graphs to enhance your report presentation. The report should be submitted as a WORD (not PDF) document.