Assignment: Discussion-Developing an Operating Budget-Theory and Practice
When creating a budget for an organization, it is important to consider several outputs, which depend on the perspectives of the individuals developing the budget. There are certain best practices to keep in mind when developing budgets.
Using the module readings, Argosy University online library resources, and the Internet, research the value of budgeting as well as methods used to motivate all departments or units of an organization to define budgets.
Based on your research, respond to the following:
- What is the purpose of developing a budget?
- Is the budget a planning document, a control document, or both?
- What are some of the phases of developing a budget?
- Are there different budgeting models?
- What are factors that could cause variances in a budget?
- How should management address variances in a budget?
- How could management facilitate a participatory approach to budget development?
- How might the budgeting process differ between for-profit (FP) and not-for-profit (NFP) hospitals?
- Contributions are an integral part of an NFP meeting budget. How appropriate is it for an NFP hospital to budget expected contributions?
- Many states have a charities bureau that monitors charitable activities including NFP hospitals. Review the site for your state and comment on this agency as it relates to the budget process. For an example, review the following link for the charities bureau for New York State.
- New York State Office of the Attorney General. (2012).CharitiesNYS.com. Retrieved fromhttps://www.charitiesnys.com/home.jsp
Give reasons to support your statements.
Write your initial response in approximately 300-500 words. Apply APA standards to citation of sources.
Assignment: Required Assignment 1-Financial Statement Analysis: Average Payment Period Ratio
In this assignment, you will compare year-over-year payment trends using the average payment period ratio, which is calculated as follows:
Average Payment Period Ratio = Current Liabilities / ([Total Operating Expenses - Depreciation and Amortization Expenses] / 365)
The average payment period measures how long it takes, on average, for a business to pay back its creditors or, in essence, to pay its bills.
Review the following scenario:
You are the department head for the finance department for Anytown Hospital, a not-for-profit community hospital in an urban community. The hospital administrator reviewed the most recent average payment period report (for fiscal year 2012 [FY2012]) and noted a variance between the FY2011 and FY2012 reports. The hospital administrator is not well versed in financial reports.
As the chief finance officer (CFO) and financial expert, you are tasked to explain the variance to the Administrator. You must answer whether the variance is positive or negative as compared with the industry benchmark of 45 days. What are the risks if the trend is negative between FY2011 and FY2012? What are the benefits if the trend is positive from FY2011 to FY2012? You will present your findings in a PowerPoint presentation to the Hospital Administrator and other hospital department heads.
Based on your analysis of the scenario, complete the following tasks:
Part 1: Average Payment Period Ratio Report Development
For this assignment, you will develop and analyze financial statements. Part 1 of the assignment includes describing what an average payment period is and how it is calculated. Use the years and the dollar amounts provided in the table below:
|
Operating Expenses
|
Depreciation and Amortization
|
Difference
|
Days per Year
|
Average Cash Expense per Day
|
|
15,255,263.00
|
553,219.00
|
|
365
|
|
|
12,589,823.00
|
665,393.00
|
|
365
|
|
|
Year
|
Current Liabilities
|
Average Cash Expense Per Day
|
Average Payment Period Days
|
|
|
2011
|
2,550,263.00
|
|
|
|
|
2012
|
4,553,681.00
|
|
|
|
Using an Excel spreadsheet (or any other tool for performing calculations), determine the average payment period for FY2011 and FY2012. Use the following steps:
- Use the provided dollar amount of total operating expenses and depreciation and amortization.
- Subtract depreciation and amortization from the operating expenses and divide by 365 days to compute the average cash expense per day.
- Identify the dollar amounts for current liabilities on the balance sheet.
- Divide the current liabilities by the average cash per day.
- Determine if the trend is positive or negative for the average payment period days.
- Determine if the 2011 and 2012 average payment period days are above or below the industry benchmark.
Part 2: Risks and Benefits Analysis
Based on your calculations in Part 1, address the following:
- Identify at least two risks if the trend is negative or two benefits if it is positive. What is the potential impact on the hospital? Support your assertions with authoritative references.
- Discuss possible contributing factors to the positive or negative trend and any strategies the hospital could use to ensure the currently established industry benchmark is met.
Develop an 8-10-slide PowerPoint presentation (excluding the title and reference slides).
Include the completed average payment period ratio table in your presentation. Include detailed speaker notes with APA format, including references. Use a properly formatted APA 6th edition figure caption for the table or any other figures or charts. Use at least 5-7 scholarly sources in your research.