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.
In this Assignment, you address three scenarios. One scenario focuses on net revenue, another revolves around fixed and variable costs, and the third presentsinformation on cash flow. You will use the information provided in the scenarios to answer questions and explore how net revenue, fixed and variable costs, and cash flow impact the ability of an organization to provide services. You will also consider the different categories of costs. A Work template is provided as an example. You will need to put create this template in Excel and add the necessary values and calculations.
Note: For those Assignments in this course that require you to perform calculations you must:
- Create an Excel spreadsheet containing the information provided. Template in Word is provided.
- Answer any questions included with the problems (as text in 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 (including the Media) dealing with net revenue, fixed and variable costs, and cash flow and how they are used in financial decision making.
- Carefully examine the information in each of the three scenarios below and consider how calculations using this information can be used to answer the questions asked.
Net RevenueScenario
Yourclinic provides fourkinds of services:
Comprehensiveinitialmedical consultationispricedat $250
- Establishedpatient limitedvisit is pricedat $75
- Establishedpatient intermediatevisit is pricedat$125
- Establishedpatient comprehensivevisit is pricedat $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?
Template for the Net Revenue Scenario
Ta
|
|
|
Annual Volume
|
Gross Revenue
|
|
|
|
|
|
|
Type of Service
|
Price Each
|
|
|
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
|
|
|
|
|
Fixed/VariableCostScenario
Youhaveperformedacost analysis of yourhealthserviceorganizationandhave determinedthefollowing: basedonthelatestthreeyears ofinformation, yourannual cost ofoperations is $1,600,000withannual volumeof 10,000procedures. Youhave determinedthat certainofyoursupplyitems arefixedinnature(thosemarkedwithan F) whileothers arevariable(markedwithaV).
|
Cost Items
|
F/V
|
Average Annual Amount
|
Cost Items
|
F/V
|
Average Annual Amount
|
|
Supplyitem1
|
F
|
$220,000
|
Supplyitem6
|
F
|
50,000
|
|
Supplyitem2
|
F
|
180,000
|
Supplyitem7
|
V
|
500,000
|
|
Supplyitem3
|
F
|
75,000
|
Supplyitem8
|
V
|
300,000
|
|
Supplyitem4
|
F
|
50,000
|
Supplyitem9
|
V
|
200,000
|
|
Supplyitem5
|
F
|
25,000
|
Total
|
|
1,600,000
|
Question: Aninsurance company that is considering directing its 1,000units peryearof procedurebusinesstoyourorganizationhasapproachedyou. Yourboardhasmandatedthatyoumake$5of profitfromeachof theprocedures. You obviously want thehighestpossibleprice,butas youenterthenegotiations, what isthe lowest possiblepriceyouwouldbewillingtoacceptfromthispayer?
Hint: Calculate the variable cost.
Template for the Fixed/Variable Cost Scenario
|
SupplyItem
|
Total
|
Variable
|
Fixed
|
|
SupplyItem1
|
|
|
|
|
SupplyItem2
|
|
|
|
|
SupplyItem3
|
|
|
|
|
SupplyItem4
|
|
|
|
|
SupplyItem5
|
|
|
|
|
SupplyItem6
|
|
|
|
|
SupplyItem7
|
|
|
|
|
SupplyItem8
|
|
|
|
|
SupplyItem9
|
|
|
|
|
Total
|
|
|
|
|
AnnualVolume
|
|
|
|
|
VariableCost per Unit
|
|
|
|
ProfitTarget
|
|
|
|
Total
|
|
|
Cash Flow Scenario
Your new business venture will begin operationon July1,20X2. Youwill hirestaff effectiveJanuary1, 20X2withacost of $40,000per month. Youknowfromexperience that collectionslagbillingby3 months (inotherwords, onceyoubill foraservice, you must wait 90days forthepaymenttobereceived. Yourbusinessvolume is projectedto beasfollows:
|
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 youhave$380,000of cashonhandJanuary1, 20X2,howmuchcashwill youhaveat theendof June20X3?ssumea100%collectionrate.
Template for the Cash Flow Scenario
|
Month
|
Opening
Cash Balance
|
Monthly Expense
|
Monthly Billing
|
Monthly Collections
|
Ending Cash Balance
|
|
January20X2
|
$380,000
|
$40,000
|
|
|
$340,000
|
|
February
|
$340,000
|
|
|
|
|
|
March
|
|
|
|
|
|
|
April
|
|
|
|
|
|
|
May
|
|
|
|
|
|
|
June
|
|
|
|
|
|
|
July
|
|
|
|
|
|
|
August
|
|
|
|
|
|
|
September
|
|
|
|
|
|
|
October
|
|
|
|
|
|
|
November
|
|
|
|
|
|
|
December
|
|
|
|
|
|
|
January20X3
|
|
|
|
|
|
|
February
|
|
|
|
|
|
|
March
|
|
|
|
|
|
|
April
|
|
|
|
|
|
|
May
|
|
|
|
|
|
|
June
|
|
|
|
|
|