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# Application Assignment Net Revenue and Budgeting

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Assignment: Looking Ahead: Application Assignment Net Revenue and Budgeting
You will begin this assignment in Week 4 and it will be due by Day 7 of Week 5.

No one can predict the future, but accountants and financial managers must try and do exactly that! By examining net revenue, costs, and cash flow, you can get a clearer picture of what to expect in your organization’s (or one with which you are familiar) fiscal future. Using these metrics to look forward will enable you to more effectively plan budgets that accomplish organizational goals.

When developing a budget, what variables do you have to take into account? In health care organizations, two of the largest groups of factors that you must consider are first, volume, and second, staffing and supply. The number of patients and tests performed each day, as well as employees and their pay rates are all crucial pieces of information when determining a budget.

In this Assignment, you address five scenarios: net revenue, fixed and variable costs, cash flow, volume budget, and staffing and supplies budget.

Note: For those Assignments in this course that require you to perform calculations you must:

Use the Excel spreadsheet template for the Week 5 assignment.
Answer any questions included with the problems (as text in the Excel spreadsheet).

A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet.

For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials.

To prepare:

Review the information in this week’s Learning Resources regarding net revenue, fixed and variable costs, and cash flow, and how they are used in financial decision making.
Review the budgeting information in Week 5 Learning Resources dealing with volume, staffing, and supplies budget.
View the following tutorial videos, provided in this week’s Learning Resources.
Week 5 Application Assignment Tutorial: Cash Flow Scenario
Week 5 Application Assignment Tutorial: Fixed Variable Scenario
Week 5 Application Assignment Tutorial: Net Revenue Scenario
Week 5 Application Assignment Tutorial: Staffing and Supply Budget Scenario
Week 5 Application Assignment Tutorial: Volume Budget Scenario
Use the Week 5 Application Assignment Template, provided in this week’s Learning Resources, to complete this assignment. Carefully examine the information in each of the scenarios and provide the necessary calculations. Using this information will help you answer the questions.
Note: All the scenarios will be submitted as one document. Each scenario will be on a different tab in the spreadsheet.

Scenario 1: Net Revenue Scenario
Your clinic provides four kinds of services:

Comprehensive initial medical consultation is priced at \$250
Established patient limited visit is priced at \$75
Established patient intermediate visit is priced at \$125
Established patient comprehensive visit is priced at \$250
Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months?

Scenario 2: Fixed/Variable Cost Scenario
You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is \$1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).

Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of \$165 per procedure (with a 100% collection rate). Your board has mandated that you make \$5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer?

Hint: Calculate the variable cost.

Scenario 3: Cash Flow Scenario
Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of \$40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows:

Question: If you have \$380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.

Scenario 4: Volume Budget Scenario
You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits.

Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at \$20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for?

Example on Template: 2 North Bldg calculated. You will need to complete 2 South Bldg, ICU and OPD

Scenario 5: Staffing and Supply Budget Scenario
Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%.

In reviewing performance to date, you note that in January, you purchased \$150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned \$2,800 of office supplies for credit from the vendor in Febuary. These supplies were purchased in a previous fiscal year.

You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 FTEs.

A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at \$16.00 per hour.

This Assignment will be due by Day 7 of Week 5. Be sure and include all of your calculations.
Net Revenue Scenario
Name First Name Last name
Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months?
Your clinic provides four kinds of services:
• Comprehensive initial medical consultation is priced at \$250
• Established patient limited visit is priced at \$75
• Established patient intermediate visit is priced at \$125
• Established patient comprehensive visit is priced at \$250
Net RevenueScenario
Type of Service Price Each Annual Volume Gross Revenue per year
Comprehensive initial medical consultant
Established patient limited visit
Established patient intermediate visit
Established patient comprehensive visit
Total Gross Revenue
Average Collection Rate
Total Net Revenue
FixedVariable
Name: Assignment:
Fixed/Variable Cost Scenario
You have performed a cost analysis of your health service organization and have determined the following: based on the latest three years of information, your annual cost of operations is \$1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).
Supply Items F/V Average Annual Amount
Supply item 1 F \$220,000
Supply item 2 F 180,000
Supply item 3 F 75,000
Supply item 4 F 50,000
Supply item 5 F 25,000
Supply item 6 F 50,000
Supply item 7 V 500,000
Supply item 8 V 300,000
Supply item 9 V 200,000
Annual Cost of Operations 1,600,000
Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. Your board has mandated that you make \$5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer? Hint: Calculate the variable cost.
Fixed/Variable Cost Scenario Variable Fixed Total
Supply item 1
Supply item 2
Supply item 3
Supply item 4
Supply item 5
Supply item 6
Supply item 7
Supply item 8
Supply item 9
Total Cost
Annual Volume
Variable Cost per Unit
Profit Target
Total (lowest possible price)
Cash Flow
Cash Flow Scenario Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of \$40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received. Your business volume is projected to be as follows:
Month Volume Billing
July, 20X2 1,000 \$100,000
August 1,000 \$100,000
September 1,000 \$100,000
October 1,000 \$100,000
November 1,000 \$100,000
December 1,000 \$100,000
January, 20X3 1,000 \$100,000
February 1,000 \$100,000
March 1,000 \$100,000
April 1,000 \$100,000
May 1,000 \$100,000
June 1,000 \$100,000
Question: If you have \$380,000 of cash on hand January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.
Ending Cash Balance
January 20X2 Opening Cash Balance = \$380,000 Monthly Expense Monthly Billing Monthly Collections
Month Cash Balance
January 20X2 \$380,000.00
February
March
April
May
June
July *
August
September
October **
November
December
January 20X3
February
March
April
May
June 20X3
Total Cash on Hand June 20X3
** 90 Billing Cycle
Volume Budget Scenario
You manage lab services in a large hospital. You have the following data on both the hospital’s budgeted patient days and visits for budget year 20XX along with the ratio of lab tests to patient days or visits.
RAW DATA 2 North Bldg 2 South Bldg ICU OPD
Patient Days/Visits Budget 19800 21900 8760 200000
Chemistry 3.6 4.3 2.9 4
Hematology 1.2 2.1 1.4 3.5
Bacteriology 3.2 5.6 3.6 5.5
Cost per test \$20.00
Tests per FTE 200,000
Question: Based on this raw data provided , how many lab tests would you anticipate for the coming budget year? If each test is priced at \$20.00, how much gross revenue would you budget? Assuming each full-time lab technician (FTE) can perform 200,000 tests each year, how many full-time lab technicians would you plan for?
TEST COUNT BUDGET 2 North Bldg 2 South Bldg ICU OPD Total
Chemistry
Hematology
Bacteriology
Total
GROSS REVENUE BUDGET 2 North Bldg 2 South Bldg ICU OPD Total
Chemistry
Hematology
Bacteriology
Total
Staffing FTE Budget Preliminary Final
Chemistry
Hematology
Bacteriology
Total
Staffing and Suppy Budget
Staffing and Supply Budget Scenario
Calculate the supplies budget necessary to operate your unit for the fiscal year beginning January 1, 20X8. It is your expectation that you will perform 24,820 procedures in the budget year. The following spending data is available for the period January 1 to March 31, 20X7 during which time procedure volume amounted to 3,240. Items marked (F) are considered fixed, those marked (V) are considered variable. Inflation is planned at 4%.
Expense Item Amount
Billing Supplies (F) \$24,400.00
IV Solutions (V) \$288,108.00
Med/Surg Supplies (V) \$411,480.00
Miscellaneous (F) \$18,400.00
Office Supplies (F) \$42,650.00
Stock Drugs (V) \$570,240.00
In reviewing performance to date, you note that in January, you purchased \$150,000 of D5W fluid replacement charged to IV solutions, which represents an entire year’s supply. In addition, you returned \$2,800 of office supplies for credit from the vendor in February. These supplies were purchased in a previous fiscal year.
Expense Account Orig. Base Period Amt Adjustments Adjusted Base Period Amt Base Period Units (Vol or Time) Amount/Unit Budget Period Units Base Amt. Budget Inflation Rate Inflation Amt Final Budget Amt
Billing Supplies (F) 4%
IV Solutions (V) -\$ 112,500.00 3240 24820 4%
Med/Surg Supplies (V) 3240 24820 4%
Misc. (F) 3 12 4%
Office Supplies (F) \$ 2,800.00 3 12 4%
Stock Drugs (V) 3240 24820 4%
Total \$ (109,700.00)
Total: \$ – 0
You also need to prepare the salary budget for the same fiscal year. You have determined that staff needs are for 6.5 FTEs. The following are the current staff with FTE values and hourly rates of pay as of January 1, 20X8:
Position/Incumbent FTE Value Pay Rate
Hardy 1.0 \$16.30
Rosetti 0.5 \$16.80
Chang 0.5 \$16.50
Martinez 1.0 \$16.00
Jones 0.5 \$16.75
A pay raise will be given to all staff on October 1st of each year at a rate of 8 percent. In making your calculations, always round to the nearest whole dollar for annual salary amounts, but keep pennies in the hourly pay rates. New staff begins the new fiscal year at \$16.00 per hour.
Incumbent FTE Value Pay Rate: Jan 1 20X8 Base Budget Amt Salary Increase% Months of Increase Increase Amt Salary Budget
Hardy
Rosetti
Chang
Martinez
Jones
Vacant
Total

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