what are the answers to this case study?

Part X11: Pricing Budgeting, and Profit Planning Case 13.5: IOP Boogie Clinic Forecasting Key concept: Forecasting an income statement for a proposed clinic 189 r. Cheryl Jacobsen was preparing to open a beachfront medical clinic, which would provide a variety of medical services to boogie boarders, surfers, and other a subchapter S tax entity. Because she had recently finished her medical residency very much in debt, Dr. Jacobsen needed to borrow money to finance the opening of the clinic. She asked her mother to loan IOP Boogie Clinic $50,000 for operating funds to get started. Dr. Jacob I promised to pay her mother 6 percent interest on the loan. sen Dr. Jacobsen's mother was willing to make the loan. However, at the suggestion of Dr. Jacobsens stepfather, Tom (a CPA), her mother asked her to prepare monthly financial statement forecasts for the clinic's first year of operation. Tom believed that the forecasting exercise would help Dr. Jacobsen anticipate potential operating problems and make more realistic operating choices. Dr. Jacobsen was not sure exactly how to prepare forecasted financial statements, but her stepfather said he would help her with the mechanics if she would provide the data about how the clinic would operate. With a little prompting from her stepfather, Dr. Jacobsen provided the following estimates and assumptions: The clinic anticipates 110 patients in January, but this patient volume is expected to increase 12 percent per month. Average charge (price) per patient will be $80, and price is not expected to change during the year. Salaries and wages expense is estimated to be a fixed amount of $5,000 per month plus a variable amount equal to 30 percent of monthly revenues. Rental expense is estimated to be constant at $3,000 per month. Supplies expense is estimated at 6 percent of monthly revenues. Other expenses are estimated as a fixed amount of $500 per month plus a variable amount equal to 4 percent of monthly revenues. Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Questions 1. Imagine you are assisting Dr. Jacobsen, and create an Excel workbook using the format on page 192. Prepare the monthly forecasted income statements (opera- tions statements) for IOP Boogie Clinic Inc. for January through December. 2. During what month does the clinic break even for monthly operations? 3. What is the approximate number of patients at the monthly operations breakeven point? 4. During what month does the clinic break even on a year-to-date (cumulative) basis? 192 Healthcare Applications: A Casebook in Accounting and Financial Management IOP Boogie Clinic Inc. Forecasted Financial Statements Assumptions: Income (operations statement Patient revenues 110 January patient volume Monthly volume growth rate 12% $80 Price per patient Monthly price growth rate 0% Salaries and wages expense $5,000 monthly fixed Salaries and wages expense 30% monthly variable based on revenue Rental expense Supplies expense Other expenses $3.000 monthly fixed 6% monthly variable based on revenue $500 monthly fixed 4% monthly variable based on revenue Other expenses Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Fiscal Year Balances 0 1 2 3 4 5 6 7 8 9 10 11 12 Income (operations) statement Patient revenues Salaries and wages expense Rental expense Supplies expense Other expenses Net income (excess of revenues over expenses) Part XIll: Pricing. Budgeting, and Profit Planning 5. What is the most critical forecasting assumption? Why? Part X11: Pricing Budgeting, and Profit Planning Case 13.5: IOP Boogie Clinic Forecasting Key concept: Forecasting an income statement for a proposed clinic 189 r. Cheryl Jacobsen was preparing to open a beachfront medical clinic, which would provide a variety of medical services to boogie boarders, surfers, and other a subchapter S tax entity. Because she had recently finished her medical residency very much in debt, Dr. Jacobsen needed to borrow money to finance the opening of the clinic. She asked her mother to loan IOP Boogie Clinic $50,000 for operating funds to get started. Dr. Jacob I promised to pay her mother 6 percent interest on the loan. sen Dr. Jacobsen's mother was willing to make the loan. However, at the suggestion of Dr. Jacobsens stepfather, Tom (a CPA), her mother asked her to prepare monthly financial statement forecasts for the clinic's first year of operation. Tom believed that the forecasting exercise would help Dr. Jacobsen anticipate potential operating problems and make more realistic operating choices. Dr. Jacobsen was not sure exactly how to prepare forecasted financial statements, but her stepfather said he would help her with the mechanics if she would provide the data about how the clinic would operate. With a little prompting from her stepfather, Dr. Jacobsen provided the following estimates and assumptions: The clinic anticipates 110 patients in January, but this patient volume is expected to increase 12 percent per month. Average charge (price) per patient will be $80, and price is not expected to change during the year. Salaries and wages expense is estimated to be a fixed amount of $5,000 per month plus a variable amount equal to 30 percent of monthly revenues. Rental expense is estimated to be constant at $3,000 per month. Supplies expense is estimated at 6 percent of monthly revenues. Other expenses are estimated as a fixed amount of $500 per month plus a variable amount equal to 4 percent of monthly revenues. Healthcare Applications: A Casebook in Accounting and Financial Management Assignment and Questions 1. Imagine you are assisting Dr. Jacobsen, and create an Excel workbook using the format on page 192. Prepare the monthly forecasted income statements (opera- tions statements) for IOP Boogie Clinic Inc. for January through December. 2. During what month does the clinic break even for monthly operations? 3. What is the approximate number of patients at the monthly operations breakeven point? 4. During what month does the clinic break even on a year-to-date (cumulative) basis? 192 Healthcare Applications: A Casebook in Accounting and Financial Management IOP Boogie Clinic Inc. Forecasted Financial Statements Assumptions: Income (operations statement Patient revenues 110 January patient volume Monthly volume growth rate 12% $80 Price per patient Monthly price growth rate 0% Salaries and wages expense $5,000 monthly fixed Salaries and wages expense 30% monthly variable based on revenue Rental expense Supplies expense Other expenses $3.000 monthly fixed 6% monthly variable based on revenue $500 monthly fixed 4% monthly variable based on revenue Other expenses Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Fiscal Year Balances 0 1 2 3 4 5 6 7 8 9 10 11 12 Income (operations) statement Patient revenues Salaries and wages expense Rental expense Supplies expense Other expenses Net income (excess of revenues over expenses) Part XIll: Pricing. Budgeting, and Profit Planning 5. What is the most critical forecasting assumption? Why