1.
Prepare
1.
Explanation of Solution
Cash Budget:
Cash budget is a financial budget. It is prepared to assess inflows and outflows of cash to manage cash balance and timing related issues. Closing cash balance is computed by adding cash receipts and subtracting cash payments from the expected cash available in the beginning.
Cash budget is presented as follows:
Particulars | Amount ($) |
Opening cash | 0 |
Add: Cash receipts 1 | 21,360 |
Less: Cash payments 2 | 23,964 |
Closing cash |
Table (1)
Working Notes:
1. Computation of Cash receipts:
Particulars | Amount ($) |
Fillings |
4,500 |
Crowns |
5,700 |
Root canals |
1,360 |
Bridges |
3,500 |
Extractions |
1,350 |
Cleaning |
2,700 |
X-Rays |
2,250 |
Total receipts | 21,360 |
Table (2)
2. Computation of Cash payments:
Particulars | Amount ($) |
Salary to dental assistants | 1,900 |
Receptionist salary | 1,500 |
Hygienist salary | 1,800 |
Public relations management | 1,000 |
Personal salary | 6,500 |
Benefits | 1,344 |
Building lease | 1,500 |
Dental supplies | 1,200 |
Janitorial | 300 |
Utilities | 400 |
Phone | 150 |
Office supplies | 100 |
Lab fees | 5,000 |
Loan payments | 570 |
Interest payments | 500 |
Miscellaneous | 200 |
Total | 23,964 |
Table (3)
2.
Explain steps that can be taken to solve financial problems of the company. Present a cash budget reflecting the steps taken. Also, explain whether these steps would likely be followed. Further, explain whether the behavioral principals relating to budgets and plans, have a role in the given situation.
2.
Explanation of Solution
Steps that could be taken to solve financial problems are listed as follows:
- Elimination of public relation personnel’s salary.
- Increase in working hours of the premise up to 40 hours a week.
- Timings should be adjusted to suit office timings of the patients.
- Lease rent paid to self should be eliminated.
Role of budgets and planning in the current set up:
- Working lesser hours than required while the company is incurring negative
cash flows and outstanding debts indicate lack of planning. - Maintaining public relations is although a good practice; however, this should be done by owners without charging cost considering the present situation of the company.
- Timings do not suit people who go to office and may want to visit dentist after office hours or on weekends. This indicates lack of analysis of demand for services.
It is likely that the suggestions would be followed; since, the internal revenue service is threatening to impound business and sell its assets. Company has incurred debt which is difficult to repay and is having negative cash flows.
Cash budget after incorporating above suggestions is presented as follows:
Particulars | Amount ($) |
Opening cash | 0 |
Add: Cash receipts 3 | 26,700 |
Less: Cash payments 4 | 21,202 |
Closing cash | 5,498 |
Table (4)
Working Notes:
3. Computation of Cash receipts:
Particulars | Amount ($) |
Total receipts (Sub Part-1) | 21,360 |
Current hours |
128 |
Proposed hours |
160 |
Total receipts expected |
26,700 |
Table (5)
4. Computation of Cash payments:
Particulars | Working ($) | Amount ($) |
Salary to dental assistants | 1,900 | |
Receptionist salary | 1,875 | |
Hygienist salary | 2,250 | |
Public relations management | 0 | |
Personal salary | 4,875 | |
Benefits | 1,344 | |
Building lease | 0 | |
Dental supplies | 1,500 | |
Janitorial | 375 | |
Utilities | 500 | |
Phone | 188 | |
Office supplies | 125 | |
Lab fees | 5,000 | |
Loan payments | 570 | |
Interest payments | 500 | |
Miscellaneous | 200 | |
Total | 21,202 |
Table (6)
Salary of dental assistants are not increased since, they are not fully utilized.
Variable costs are increased with increase in the working hours of the company.
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Chapter 9 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
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