Question
Using the following data, prepare a cash budget for Plains Medical Center for Fiscal 2017. You can assume that the Medical Center started the fiscal
Using the following data, prepare a cash budget for Plains Medical Center for Fiscal 2017. You can assume that the Medical Center started the fiscal year with $7,264,871 in cash on its balance sheet. Once you compile that budget consider the following issues:
Assume the Medical Center wishes to keep a minimum cash balance each month that equals one month of salary expense plus one month of salary and other expenses. In addition, they are required to keep one year's worth of debt service payments in cash on hand each month. So your minimum cash balance must be the sum of those salary/expense items noted here, plus one year of debt payments. What is the minimum cash balance that Plains Medical Center should keep each month based on these assumptions? Look at your cash budget calculations. Are there any months where the cash balance in that month falls below that minimum? If so, what management actions can you take to address this issue? Be specific!
Plains Medical Center | |||||||||||
Cash Budgeting Data | |||||||||||
Fiscal Year 2017 (7/1/17-6/30/18) | |||||||||||
Estimated Patient Billings (at expected collection amount) | |||||||||||
July | $7,219,178 | ||||||||||
August | 7,219,178 | ||||||||||
September | 6,986,301 | ||||||||||
October | 7,219,178 | ||||||||||
November | 6,986,301 | ||||||||||
December | 7,219,178 | ||||||||||
January | 7,219,178 | ||||||||||
February | 6,520,548 | ||||||||||
March | 7,219,178 | ||||||||||
April | 6,986,301 | ||||||||||
May | 7,219,178 | ||||||||||
June | 6,986,301 | ||||||||||
Total | $85,000,000 | ||||||||||
50% of billings go to government payers, 40% to commercial payers, and 10% are self-pay accounts | |||||||||||
The historic timing of collections looks like this: | |||||||||||
Government | Commercial | Self-Pay | |||||||||
Month of service | 15% | 10% | 2% | ||||||||
Month following service | 50% | 45% | 10% | ||||||||
Second month following service | 15% | 15% | 10% | ||||||||
Third month following service | 10% | 15% | 10% | ||||||||
Fourth month following service | 5% | 10% | 8% | ||||||||
Uncollectable | 5% | 5% | 60% | ||||||||
Total | 100% | 100% | 100% | ||||||||
You can assume that billings increased by 5% each month from year to year, so you can use March 2017/1.05 as a part of estimating collections for July 2017 | |||||||||||
Salaries for each month are estimated at $2,250,000 + 20% of that month's billings. | |||||||||||
* Payments for Salaries are 50% of the current month estimate + 50% of the prior month's estimate | |||||||||||
* Hourly employees are given a 5% bonus at Christmas (paid during December) totaling 10% of estimated salaries for December | |||||||||||
Supply purchases are estimated at 17.5% of the billings in that month | |||||||||||
* Payments for supplies are made in total in the following month | |||||||||||
Other operating expense purchases are estimated at 12.5% of the billings in that month | |||||||||||
* Payments for other expenses are made in total in the following month | |||||||||||
The hospital was constructed using $18,000,000 in debt, payable in monthly installments over 25 years at 6% annual interest | |||||||||||
It recognizes $445,000 in straight line depreciation expense each month. Depreciation is not funded. | |||||||||||
The Board of Directors has approved the following Capital Expenditure budget for Fiscal 2017: | |||||||||||
Item | Cost | Projected Purchase Date | |||||||||
Lab Chemistry Analyzer | $250,000 | 9/30/17 | |||||||||
Replace CT Scanner | 1,050,000 | 11/30/17 | |||||||||
Replace two Anesthesia Machines | 775,000 | 4/30/18 | |||||||||
Total | $2,075,000 | ||||||||||
Any one willing to solve, deeply appreciate it.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started