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