Question

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:

  

Answer 1

Answer:

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