Operating Budget

Anonymous
timer Asked: May 23rd, 2014
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Question description

Review Mini-Case Study 1 in Chapter 26 in your assigned course textbook. In a one-to-two page paper, explain why you would or would not accept the proposal to add a retail pharmacy to a hospital. List at least three improvements that could be made to the proposal to make it more effective.

Chapter 26:

Sample General hospital belongs to the Metropolis Health System. The new chief financial officer(CFO) at Sample hospital has been attempting to find  new sources of badly needed revenue for the facility. Consequently, the CFO is preparing a proposal to add a retail pharmacy within the hospital itself. If the proposal four exhibits, all of which appear at the end of this case .Exhibit 26-1, the "3-year retail pharmacy profitability analysis," is the primary document.It is supported by Exhibit 26-2, the"Retail pharmacy proposal assumptions."The profitability analysis is further supported by Exhibit 26-3, the "year 1 monthly income statement detail."Finally, exhibit 26-4 presents the supporting"Year 1 monthly cash flow detail and assumptions.When the controller reviewed the exhibits,she asked how the working capital of $49,789 was derived. The CFO explained that it represents three months of departmental expense. He also explained that the cost of drugs purchased for the first 60 days was offset by these purchases' accounts payable cycle, so the net effect was zero.In essence, the vendors were financing the drug purchases. Thus, the working capital reconciled as follows:

Working Capital:

Cost of drugs(2 months) $303,400

Vendor financing (accounts payable)($303,400)

Departmental expense(3 months) $49,789

Total working capital required  $49,789


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Cornell University

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