Budget Project

Budget Project

Scenario & Questions

Information Given:
Read the scenario below and answer the following 3 questions (be sure to scroll down). You will also need to complete the Budget on the “Income Statement & Budget” tab. Scenario: South Shore Medical Clinic is expanding its operations. As you will notice from Year 3 to Year 4, they have increased their revenue and encounted additional expenses. In addition, they have rented a new office at the end of the year so their rent expense is going to increase (they will now have two offices). In addition, they have added 2 additional staff members to payroll. Using the Income Statement, prepare a budget that takes these changes into account for the upcoming year.
Questions:
1. Using the Balance Sheet, calculate the current ratio. Comment on whether or not the ratio shows financial strength.
2. Using the Income Statement, calculate the operating margin ratio for Year 4. How well does the company measure in terms of operating efficiency?
3. Explain your budget suggestions. Do you think Revenue will increase or decrease? Do you think Expenses will increase or decrease?

Income Statement & Budget

Task #1: South Shore Medical Clinic is expanding its operations. As you will notice from Year 3 to Year 4, they have increased their revenue and encounted additional expenses. In addition, they have rented a new office at the end of the year so their rent expense is going to increase (they will now have two offices). In addition, they have added 2 additional staff members to payroll. Using the Income Statement below, prepare a budget that takes these changes into account for the upcoming year. Suggest the budget amounts for Year 5 in the column below.
South Shore Medical Clinic
Income Statement
For the year ending December 31, 20X4
ACTUAL BUDGET
Revenues:
Service Fee Revenue $ 160,000
Total Revenues
Expenses:
Advertising Expense $ 20,000
Shipping Expense $ 12,000
Salaries Expense $ 80,000
Rent Expense $ 32,000
Utilities Expense $ 5,200
Total Expenses
Income:
Net Income $ 10,800
Operating Margin:

Balance Sheet

South Shore Medical Clinic
Balance Sheet
December 31, 20X4
ASSETS LIABILITIES & NET WORTH
Current Assets Current Liabilities
Cash $ 30,000 Accounts Payable $ 32,200
Accounts Receivable $ 60,000 Current Portion – Long Term Debt $ 65,000
Supplies $ 10,000 Total Current Liabilities $ 97,200
Inventory $ 45,000
Total Current Assets $ 145,000 Non-current Liabilities
Long Term Debt, net of Current Portion $ 210,000
Non-current Assets Total Non-Current Liabilities $ 210,000
Equipment $ 193,000
Building $ 200,000 NET WORTH
Total Non-current Assets $ 393,000 Owner’s Equity $ 230,800
TOTAL ASSETS $ 538,000 TOTAL LIABILITIES & NET WORTH $ 538,000
Current Ratio:

Trial Balance

South Shore Medical Clinic
Trial Balance
December 31, 20X4
Debit Credit
Cash $ 30,000
Accounts Receivable 60,000
Supplies 10,000
Inventory 45,000
Equipment 193,000
Building 200,000
Accounts Payable $ 32,200
Current Portion – Long Term Debt 65,000
Long Term Debt, net of Current Portion 210,000
Owner’s Equity 220,000
Service Fee Revenue 160,000
Advertising Expense 20,000
Shipping Expense 12,000
Salaries Expense 80,000
Rent Expense 32,000
Utilities Expense 5,200
Totals $ 687,200 $ 687,200

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