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Exercise: Adjusting the Budget (pp. 272-73)

Review the information presented below in the Sample Operating BudgetDepartment of Physical Therapy and adjust this budget according to the following:

• You have just learned that inpatient charges will probably be 3 percent higher than projected and that outpatient charges are expected to increase by 8 percent, and that your research grant support will be reduced by half.
• The continuing education conference projected to net $3,200 has been canceled.
• Salary expenses will likely be 2 percent higher than originally anticipated.
• You are required to show a projected net profit of at least 50 percent of total revenue. If your revised budget generates less than this level of net profit or surplus, indicate where you can probably cut expenses to meet the target and explain why the expenses you have chosen to cut are your best choices.

To respond for this assignment, please:

(1) Submit a spreadsheet demonstrating the changes that you made.

(2) In a text box, state what the level of net profit or surplus is after you've made the adjustments and indicate what, if any, expense adjustments you would make to maintain net profit at 50% of total revenue.

Sample Operating BudgetDepartment of Physical Therapy

(July 1, 2013, through June 30, 2014)

I. Revenue and Income

A. Inpatient Charges $550,000

B. Outpatient Charges 310,000

C. Research Grant Support 29,000

D. Continuing Education Conference 3,200

E. Supplies and Equipment Sales 11,500

Total Revenue $903,700

II. Expenses

Direct Expenses

A. Salaries $260,000

B. Consultant 2,500

C. Honorarium 1,500

D. Minor Equipment 6,000

E. Equipment Rental 2,000

F. Travel 2,500

G. Telephone 5,000

H. Supplies 6,000

I. Postage 350

J. Copy Machine Rental 11,000

K. Advertisement 1,500

L. Dues 800

M. Books 350

N. Equipment Maintenance and 2,000 Service Contracts

Total Direct Expenses $301,500

Indirect Expenses

A. Employee Benefits (23%) $59,800

B. Administration 23,000

C. Equipment Depreciation 7,200

D. Physical Plant Operation 39,000

E. Maintenance and Repairs 2,000

F. Building Depreciation 6,000

G. Laundry/Linen 2,500

H. Housekeeping 4,900

Total Indirect Expenses $144,400

Total Expenses $445,900

Net Profit or Loss $457,800

EXERCISE: ADJUSTING THE BUDGET Using the sample budget for the health information management service, adjust the budget to reflect the changes described below. Indicate the line item and the amount of the change, and make any note about the change (e.g., that an item cannot be eliminated or further reduced). Assume that it is possible to move funds from one line item to another. 1. What would be the dollar impact if the 5% increase planned for January 1 were reduced to 3.5% and postponed until April 1? EXERCISE: ADJUSTING THE BUDGET 273 As an alternative cost-saving strategy, determine the annual savings if all hourly staff were reduced from 40 to 37.5 hours as their standard workweek. Consider the top three staff- director, compliance specialist, and registries coordinator-as salaried and thus unaffected by the workweek change. 3. Determine the total dollar impact if both of the foregoing strategies were implemented together. Remember that the pay increase affects everyone, but the 37.5-hour week affects just the hourly staff. 4. Prepare a request for funding from an external vendor to cover the costs of the health infor- mation management regional meeting and health information management week outreach efforts. EXERCISE: ADJUSTING THE BUDGET Using the sample budget for the health information management service, adjust the budget to reflect the changes described below. Indicate the line item and the amount of the change, and make any note about the change (e.g., that an item cannot be eliminated or further reduced). Assume that it is possible to move funds from one line item to another. 1. What would be the dollar impact if the 5% increase planned for January 1 were reduced to 3.5% and postponed until April 1? EXERCISE: ADJUSTING THE BUDGET 273 As an alternative cost-saving strategy, determine the annual savings if all hourly staff were reduced from 40 to 37.5 hours as their standard workweek. Consider the top three staff- director, compliance specialist, and registries coordinator-as salaried and thus unaffected by the workweek change. 3. Determine the total dollar impact if both of the foregoing strategies were implemented together. Remember that the pay increase affects everyone, but the 37.5-hour week affects just the hourly staff. 4. Prepare a request for funding from an external vendor to cover the costs of the health infor- mation management regional meeting and health information management week outreach efforts