question archive Activity-Based Budgeting St
Activity-Based Budgeting St
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Activity-Based Budgeting
St. Sophia’s Hospital is preparing its budget for the coming year. It uses an activity-based approach for all costs except physician care. Its emergency room has three activity areas with cost drivers as follows:
1. Reception—paperwork of incoming patients. Cost driver is the number of forms completed.
2. Treatment—initial diagnosis and treatment of patients. Cost driver is the number of diagnoses treated.
3. Cleaning—general cleaning plus preparing treatment facilities for next patient. Cost driver is the number of people visiting emergency room (patients plus person(s) accompanying them).
| Budgeted Amount of Cost Driver | |||
|---|---|---|---|
| Activiy Area | Cost Driver Rates | Outpatients | Admitted Patients |
| Reception | $ 61 | 8,400 forms | 6,500 forms |
| Treatment | 121 | 8,000 diagnoses | 5,400 diagnoses |
| Cleaning | 22 | 7,400 people | 3,400 people |
a. Prepare the total budgeted cost for each activity.
| Activity Cost Budget | |||
|---|---|---|---|
| Reception | Treatment | Cleaning | |
| Outpatients | |||
| Admitted Patients | |||
| Total | |||
Cash Receipts
The sales budget for Andrew Inc. is forecasted as follows:
| Month | Sales Revenue |
|---|---|
| May | $ 170,000 |
| June | 210,000 |
| July | 230,000 |
| August | 170,000 |
To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:
- 50 percent in the month of sale.
- 25 percent in the month following sale.
- 20 percent in the second month following sale.
- 5 percent uncollectible.
The company gives a 2 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $34,000, of which $10,000 represents uncollected March sales and $24,000 represents uncollected April sales.
Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.
| Andrew, Inc. Schedule of Budgeted Cash Collections Quarterly by Months |
||||
|---|---|---|---|---|
| May | June | July | Total | |
| Total Cash receipts: | ||||
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1
| Activity Cost Budget | |||
| Reception | Treatment | Cleaning | |
| Outpatients | $ 5,12,400 | $9,68,000 | $ 1,62,800 |
| Calculation | (8,400*$61) | (8000*$121) | (7400*$22) |
| Admitted Patients | $3,96,500 | $6,53,400 | $ 74,800 |
| Calculation | (6500*$61) | (5400*$121) | (3400*$22) |
| Total | $ 9,08,900 | $ 16,21,400 | $2,37,600 |
2.
| BUDGETED CASH COLLECTIONS : | |||||
| Sr.no | May | June | July | Total | |
| A | Sales revenue | 1,70,000 | 2,10,000 | 2,30,000 | 6,10,000 |
| 2% cash discount | 3,400 | 4,200 | 4,600 | 12,200 | |
| B | Net Sales | 1,66,600 | 2,05,800 | 2,25,400 | 5,97,800 |
| C | 50% in the month of sale(50% of B) | 83,300 | 1,02,900 | 1,12,700 | 2,98,900 |
| D | 25% in the month of following sale(A) | 12,000 | 42,500 | 52,500 | 1,07,000 |
| E | 20% in the month of the second following sale(A) | 8,000 | 9,600 | 34,000 | 51,600 |
| Total Cash collection | 1,03,300 | 1,55,000 | 1,99,200 | 4,57,500 | |
