Preparing an Operating Budget

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Scenario
One year ago, Metropolitan Memorial expanded its operations into a rural community located approximated a hundred miles from its main facility. The clinic offers a wide array of outpatient services. As the Senior Accountant, you are reviewing the clinics operating budget from the previous year. You have been asked by the hospitals chief administrator to create a new six-month operations budget for the clinic.

Using an Excel spreadsheet, create a new six-month budget for the clinic that includes the following revenue and expense projections: (See the document, notes for how to add numbers to the spreadsheet)

The clinics revenue is projected to grow by approximately 3% as a result of a new managed care contract.
The cost of expenses is expected to increase to 1.5%.
The clinic will also be adding a new roof to the facility at a projected cost of $50,000.
Then prepare a memo for the chief administrator. The memo should include a review of the previous years budget, an analysis of the upcoming changes (figures above), and a discussion about the impacts that these changes will have on the budget for the upcoming yea

Sample Solution

Creating a Six-Month Operations Budget for Metropolitan Memorial Clinic

Understanding the Scenario:

  • Expansion: The clinic recently expanded into a rural community.
  • Budget Review: The Senior Accountant is reviewing the previous year’s budget.
  • New Budget: The goal is to create a six-month operations budget for the clinic.
  • Revenue and Expense Projections:
    • Revenue growth: 3% due to a new managed care contract.
    • Expense increase: 1.5%.
    • New roof cost: $50,000.

Excel Spreadsheet Setup:

Create an Excel spreadsheet with the following columns:

Month Revenue Expenses Profit
Month 1
Month 2
…
Month 6
Total

Data Entry and Calculations:

  1. Historical Data: Enter the previous year’s monthly revenue and expense data into the corresponding cells.
  2. Projected Growth:
    • Revenue: Multiply the previous year’s monthly revenue by 1.03 to account for the 3% growth.
    • Expenses: Multiply the previous year’s monthly expenses by 1.015 to account for the 1.5% increase.
  3. New Roof Cost: Allocate the $50,000 evenly across the six months.
  4. Profit Calculation: Subtract expenses from revenue to calculate the profit for each month.

Memo to Chief Administrator:

Subject: Six-Month Operations Budget for [Clinic Name]

Dear [Chief Administrator’s Name],

I am writing to present the six-month operations budget for [Clinic Name] for the upcoming fiscal year.

Review of Previous Year’s Budget: [Summarize key findings from the previous year’s budget, such as revenue and expense trends, profit margins, and any significant variances.]

Analysis of Upcoming Changes: The clinic is anticipating several changes in the upcoming year:

  • Revenue Growth: A new managed care contract is expected to increase revenue by approximately 3%.
  • Expense Increase: The cost of expenses is projected to rise by 1.5%.
  • Capital Expenditure: A new roof will be installed at a cost of $50,000.

Impact on Budget: These changes will have a [positive/negative] impact on the budget. While the revenue growth will contribute to increased profits, the expense increase and capital expenditure will offset some of the gains. The overall impact on the budget will depend on the specific amounts involved and the clinic’s ability to manage costs effectively.

Conclusion: The six-month operations budget presented here provides a preliminary forecast for the clinic’s financial performance. It is important to monitor the budget closely throughout the year and make adjustments as needed to ensure that the clinic remains financially sustainable.

[Attach the Excel spreadsheet containing the detailed budget]

Sincerely, [Your Name] Senior Accountant Metropolitan Memorial Hospital

Note: This is a basic outline. You may need to add more detail or analysis depending on the specific requirements of your organization.

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