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UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 2 James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank. The company has produced sales estimates, and these appear in the worksheet below. Collection estimates are as follows: 10 percent within the month of sale, 75 percent in the month following the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also appear in the worksheet below. Payments for labor and supplies are typically made during the month following the one in which these costs have been incurred. General and administrative salaries will amount to approximately $27,000 a month; lease payments under long-term lease contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September and December; and a progress payment of $180,000 on a new building must be paid in October. Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be maintained throughout the cash budget period. What loan will be the company require in October? ANSWER May Collections worksheet: Billed charges Collections Within 30 days 30-60 days 60-90 days Total collections Supplies worksheet: Amount of labor and supplies Payments made for labor and supplies Net cash gain (loss): Total collections Total purchases General and administrative salaries Lease payments Miscellaneous expenses Taxes Progress payment Total payments Net cash gain/loss Borrowing/surplus summary: Cash at beginning with no borrowing Cash at end with no borrowing Target cash balance (given) Cumulative surplus cash / loan balance June July August September $180,000 $180,000 $360,000 $540,000 $720,000 $90,000 $90,000 $126,000 $882,000 $306,000 October November December January $360,000 $360,000 $90,000 $234,000 $162,000 $90,000 $180,000 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 5 Suppose one of the suppliers to Seattle Health System offers terms of 3/20, net 60. a. When does the system have to pay its bills from this supplier? b. What is the approximate percentage cost of the costly trade credit offered by this supplier? (Assume 360 days per year.) ANSWER UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 6 Langley Clinics, Inc., buys $400,000 in medical supplies a year (at gross prices) from its major supplier, Consolidated Services, which offers Langley terms of 2.5/10, net 45. Currently, Langley is paying the supplier the full amount due on Day 45, but it is considering taking the discount, paying on Day 10, and replacing the trade credit with a bank loan that has a 10 percent annual cost. a. What is the amount of free trade credit that Langley obtains from Consolidated Services? (Assume 360 days per year throughout this problem.) b. What is the amount of costly trade credit? c. What is the approximate annual percentage cost of the costly trade credit? d. Should Langley replace its trade credit with the bank loan? Explain your answer. e. If the bank loan is used, how much of the trade credit should be replaced? ANSWER UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 8 Fargo Memorial Hospital has annual net patient service revenues of $14.4 million. The hospital's patient accounts manager estimates that 10 percent of third party payers pay on Day 30, 60 percent pay on Day 60, and 30 percent pay on Day 90. a. What is Fargo's average collection period? (Assume 360 days per year throughout this problem.) b. What is the firm's current receivables balance? c. What would be the firm's new receivables balance if a newly proposed electronic claims system resulted in collecting from third-party payers in 45 and 75 days, instead of in 60 and 90 days? d. Suppose the firm's annual cost of carrying receivables was 10 percent. If the electronic claims system costs $30,000 a year to lease and operate, should it be adopted? (Assume that the entire receivables balance has to be financed.) ANSWER pay on Day 60, UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 15 -- Revenue Cycle and Current Accounts Management PROBLEM 9 Jones Surgicenter uses 90,000 bags of IV solution annually. The optimal safety stock (which is on hand initially) is 1,000 bags. Each bag costs the center $1.50, inventory carrying costs are 20 percent, and the cost of placing an order with the supplier is $15. a. What is the economic order quantity? b. What is the maximum inventory of IV solution bags? c. What is the center's average inventory of IV solution bags? d. How often must the center order (in days)? ANSWER
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Hi there,Attached please find the Excel template provided with all work completed. That is to say, every problem is answered completely, with citations included :)Thanks again,Selenica

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 15 -- Revenue Cycle and Current Accounts Management
PROBLEM 2
James Buchanan Orthotics and Prosthetics is planning to request a line of credit from its bank.
The company has produced sales estimates, and these appear in the worksheet below. Collection
estimates are as follows: 10 percent within the month of sale, 75 percent in the month following
the sale, and 15 percent in the second month following the sale. Labor and supplies estimates also
appear in the worksheet below. Payments for labor and supplies are typically made during the
month following the one in which these costs have been incurred. General and administrative
salaries will amount to approximately $27,000 a month; lease payments under long-term lease
contracts will be $9,000 a month; depreciation charges will be $36,000 a month; miscellaneous
expenses will be $2,700 a month; income tax payments of $63,000 will be due in both September
and December; and a progress payment of $180,000 on a new building must be paid in October.
Cash on hand on July 1 will amount to $132,000, and a minimum cash balance of $90,000 will be
maintained throughout the cash budget period. What loan will be the company require in
October?
ANSWER
May
Collections worksheet:
Billed charges
Collections
Within 30 days
30-60 days
60-90 days
Total collections
Supplies worksheet:
Amount of labor and supplies
Payments made for labor and supplies
Net cash gain (loss):
Total collections
Total purchases
General and administrative salaries
Lease payments
Miscellaneous expenses
Taxes
Progress payment
Total payments
Net cash gain/loss
Borrowing/surplus summary:
Cash at beginning with no borrowing
Cash at end with no borrowing
Target cash balance (given)
Cumulative surplus cash / loan balance

$180,000

June

July

$180,000

18,000

18,000
135,000

18,000

153,000

$90,000

18,000
0
27000
9000
2700

38,700
-20,700

$90,000
$90,000

153,000
90000
27000
9000
2700

128,700
24,300

August
$360,000

36,000
135,000
27,000
198,000

$126,000
$90,000

198,000
90000
27000
9000
2700

128,700
69,300

132,000
201,300
90,000
111,300

$540,000
54,000
270,000
27,000
351,000

$882,000
$126,000

351,000
126000
27000
9000
2700

164,700
186,300

201,300
387,600
90,000
297,600

September
$720,000
72,000
405,000
54,000
531,000

$306,000
$882,000

531,000
882000
27000
9000
2700
63000
983,700
-452,700

387,600
-65,100
90,000
-155,100
Loan

October
$360,000
36,000
540,000
81,000
657,000

$234,000
$306,000

657,000
306000
27000
9000
2700
180000
524,700
132,300

-65,100
67,200
90,000
-22,800
Loan

November
$360,000
36,000
270,000
108,000
414,000

$162,000
$234,000

414,000
234000
27000
9000
2700

272,700
141,300

67,200
208,500
90,000
118,500

December
$90,000
9,000
270,000
54,000
333,000

$90,000
$162,000

333,000
162000
27000
9000
2700
63000
263,700
69,300

208,500
277,800
90,000
187,800

January
$180,000
18,000
67,500
54,000
139,500

$90,000

139,500
90000
27000
9000
2700

128,700
10,800

277,800
288,600
90,000
198,600

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 15 -- Revenue Cycle and Current ...


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