FINANCE ASSIGNMENT.

Due April 4 part 1.docx

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 presents information 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.

· Show all your work.

· 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.

This Assignment will be due by Day 7 of Week 5. Be sure and include all of your calculations.

Net Revenue Scenario

Your clinic provides four kinds of services:

· Comprehensive initial medical consultation is priced at $250

· Established patient limited visit is priced at $75

· Established patient intermediate visit is priced at $125

· Established patient comprehensive visit is priced at $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/Variable Cost Scenario

You have performed a cost analysis of your health service organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).

Cost Items	F/V	Average Annual Amount	Cost Items	F/V	Average Annual Amount
Supply item 1	F	$220,000	Supply item 6	F	50,000
Supply item 2	F	180,000	Supply item 7	V	500,000
Supply item 3	F	75,000	Supply item 8	V	300,000
Supply item 4	F	50,000	Supply item 9	V	200,000
Supply item 5	F	25,000	Total		1,600,000

Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. Your board has mandated that you make $5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer?

Hint: Calculate the variable cost.

Template for the Fixed/Variable Cost Scenario

Supply Item	Total	Variable	Fixed
Supply Item 1
Supply Item 2
Supply Item 3
Supply Item 4
Supply Item 5
Supply Item 6
Supply Item 7
Supply Item 8
Supply Item 9
Total
Annual Volume
Variable Cost per Unit
Profit Target
Total

Cash Flow Scenario

Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received. Your business volume is projected to be as follows:

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 you have $380,000 of cash on hand January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.

Template for the Cash Flow Scenario