Dr. Dawn Gifford is a new dentist specializing in treating children. Dr. Gifford has two primary sources

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Dr. Dawn Gifford is a new dentist specializing in treating children. Dr. Gifford has two primary sources of revenues:

(1) Fees from regular dental work (checkups, cleanings, fillings, etc.) and

(2) Fees from specialized dental reconstructive surgery. Last year, Dr. Gifford earned an average of $75 per patient visit from regular customers and $800 per surgery. The following operating expenses were incurred last year in running the office:

Variable operating expenses:

Dental supplies (per patient). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10

Hospital surgery room rental (per surgery) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

Annual fixed operating expenses:

Office manager’s salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000

Dental hygienist’s salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26,000

Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,600

Rental of office space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12,000

Depreciation expense on office equipment* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20,000

Liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48,000

Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600

*Total equipment cost, $200,000; depreciated over 10 years on a straight-line basis.

Last year, Dr. Gifford treated an average of 200 patients per month and performed an average of eight surgeries per month. She expects to increase the number of patients serviced by 10% this coming year and the number of surgeries to 10 per month. She also expects the average patient fee to be $80 and the average surgical fee to be $850. Dr. Gifford expects the variable expenses to remain constant this year, but is expecting to raise the manager’s salary by 5% and the hygienist’s by 15%. She thinks the other expenses will stay about the same. All revenues are expected to be collected and all payable expenses are expected to be paid during the year.

Based on these data (and ignoring payroll and income taxes):

1. What was the operating profit (loss) for last year?

2. Prepare a sales budget and an operating expense budget for this coming year.


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Accounting concepts and applications

ISBN: 978-0538745482

11th Edition

Authors: Albrecht Stice, Stice Swain

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