Problem Three (Chapter 10) Budgetary Problem (10 points)

Sunnyside Medical Center is located in a summer resort community. During the summer months the center operates an outpatient clinic for the treatment of minor injuries and illnesses. The clinic is administrated as a separate department within the hospital. It has its own staff and maintains its own financial records. All patients requiring extensive or intensive care are referred to other hospital departments.

An analysis of past operating data for the out-patient clinic reveals the following:

Staff: Seven full-time employees with total monthly salaries of $56,000. On a monthly basis, one additional staff member is hired for every 500 budgeted patient visits in excess of 3,000, at a cost of $5,000 per month.

Facilities: Monthly facility costs, including depreciation of $3,000, total $10,000.

Supplies: The supplies expense averages $12 per patient visit. In addition, the Medical Center intends to use the ending inventory balance at the end of May equally over the months of June and July for the outpatient clinic without replenishing the stock until August.

Additional variable patient costs, such as medications, are charged directly to the patient by the hospital pharmacy.

Payments: All utilities/maintenance expenses are paid in the month the cost is incurred and should be estimated at $35,000 per month for June and July.

Collections: The average bill for services rendered is $80. Of the total bills, 40 percent are paid in cash at the time the service is rendered, 10 percent are never paid, and the remaining 50 percent are covered by insurance. In the past, insurance companies have disallowed 20 percent of the claims filed and paid the balance two months after services are rendered.

May 31 status: At the end of May, the clinic had $14,000 in cash and supplies inventory costing $4,000.

Budgeted patient visits for next summer are as follows:

Month	Patient Visits
April	2,000
May	2,200
June	2,500
July	3,500
August	4,000

Required:

For the outpatient clinic you should prepare a cash budget for the months of June and July concluding with the ending budgeted cash balance each month.