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UNIVERSITY OF SAN JOSE – RECOLETOS COLLEGE OF COMMERCE S.Y. 2019-2020
ACCTG 202 Case Analysis for Midterm 2020 SUBMITTED TO: Mr. Dexter Joseph B. Cuevas
SUBMITTED BY: Amparo, Kemima Joy Corpuz, Jessa Despi, Kresha Jean Edullantes, Vivian Marie Lomocso, Jean Yamas, Johnsen (MWF 12:30 – 1:30 PM)
1. Prepare a monthly cash budget for Dr. Jones. Does Jones have a significant cash flow problem? How would you use the budget to show Jones why he is having financial difficulties? Dr. Roger Jones Dental Clinic Cash Budget For the Month of XXX Cash balance, beg Add: Cash receipts (note 1) Total cash available Less: Cash disbursements (note 2) Cash balance, end Note 1: Computation for Cash Receipts Fillings 50×90 = 4, 500.00 Crowns 300×19 = 5, 700.00 Root Canals 170×8 = 1, 360.00 Bridges 500×7 = 3, 500.00 Extractions 45×30 = 1, 350.00 Cleaning 25×108 = 2, 700.00 X-ray 15×150 = 2, 250.00 Total cash receipts ₱ 21, 360.00 Note 2: Computation for Cash Disbursements Salaries 12, 700.00 Benefits 1, 344.00 Building Lease 1, 500.00 Dental Supplies 1, 200.00 Janitorial 300.00 Utilities 400.00 Phone 150.00 Office Supplies 100.00 Lab fees 5, 000.00 Loan Payments 570.00 Interest Payments 500.00 Miscellaneous 500.00 Total cash disbursements ₱ 24, 264.00
₱
₱
0.00 21, 360.00 21, 360.00 24, 264.00 (2, 904.00)
Based from the cash budget we presented above, Dr. Jones has a negative ending cash balance of 2, 904 pesos. This indicates a cash flow problem wherein cash disbursements is greater than the cash receipts. In his case, the business requires more funds to cover the disbursements. We have provided a cash budget statement to Dr. Jones since he can observe the inflows and outflows of his business and see the possible sources of the disbursements of the business, wherein we can possibly reduce his disbursements so that he can avoid cash shortage during periods in which a company encounters a high amount of expenses.
2. Using the cash budget prepared in Requirement 1 and the information given in the case, recommend actions to solve Dr. Jones’ financial problems. Prepare a cash budget that reflects these recommendations and demonstrates to Jones that the problems can be corrected. Do you think that Jones will accept your recommendations? Do any of the behavioural principles discussed in the chapter have a role in this type of setting? Explain. We prepared different approaches of solving Dr. Jones’ financial problems wherein it recommends and demonstrates possible corrections that he can use: Additional Working Hours to Increase Income We first suggest to increase the working hours from 32 hours per week to 40 hours wherein the business will operate from Monday to Saturday. The reason behind is that Dr. Jones can attract more customers during these time of the day since most students and workers are already dismissed with their respective works. We used the following formulas to come up with the possible increase of income: I. Total Working Hours (current) 32 hours per week × 4 weeks = 128 hours II. Current Revenue per hour 21 360 ÷ 128 hours = P 166.88 per hour III. Increase in working hours ( from 32 to 40 hrs/week) (40 hrs/week × 4) - 128 hrs =160 - 128 = 32 hours increase IV. Possible Revenue Increase P 166. 88 × 32 hrs increase = P 5, 340.16 possible increase in revenue Cash flow increase Incremental revenues Salary increase Benefits Variable expenses Total
₱ 5,340.16 ₱ 510.00 53.97 1, 650.00
2, 213.97 ₱ 3, 126.19
Since we have arrived at the total increase in cash which is ₱ 3, 126.19, we made a revised cash budget to see the possible changes if Dr. Jones would use this approach. Total cash available (21,360.00+5,340.16) Less: Cash disbursements Salaries ₱ 13,210.00
₱ 26, 700.16
Benefits Building lease Dental Supplies Janitorial Utilities Phone Office Supplies Lab Fees Loan Payments Interest Payments Miscellaneous New ending cash balance
1,398.00 1,500.00 1,350.00 300.00 450.00 150.00 100.00 5,625.00 570.00 500.00 500.00
25,653.00 ₱ 1,047.16
NOTE: Variable expenses increased by 25 % ( 8 added hours ÷ 32 original hours)
However, this approach may be risky due to the fact that it is not absolute that it will be achieved. But if the business won't proceed with this approach, it will aggravate more and thus resulting to create a bigger cash flow problem due to the loss that will occur.
Cutting of unnecessary personnel Upon assessing the employees of Dr. Jones, we highly recommend to somehow decrease it and consider to have one efficient and effective assistant. Moreover, Mrs. Jones which is obviously the partner of Dr. Jones is a great help if her work will be eliminated provided that her tasks are not-that-important in the said endeavor. See the recommendations below: Savings Cutting out one dental assistant Salaries Divide: Two dental assistants
1,900.00 ÷ 2
950.00
Divide: Actual Salaries Rate Multiply: Actual total benefits
÷ 12,700.00 7% 1,344.00
100.54
Recommended Salary to Dr. Jones Elimination of Mrs. Jones Total Savings
1,050.54 1,000.00 1,000.00 3,050.54
Based from the computations above, Dr. Jones could save a total of P3,050.54 that would somehow be applied to the incurred expenses and debts, more importantly it to have a profit along the way. But we are in doubt that at some point Jones family might not consider these matters because they are faced with a lot of possibilities and a high risk on personnel inefficiency of work because a dental assistant has different role compared to a
receptionist. There might be some difficulties in adjustment and the division of labor within the business will be affected.
Increasing the Prices of the Services Another possibility that can enable to help the problem about the deficiency is to increase fees charged for the dental services. From the computation on Approach #1, We used the 31% for the variable cost ratio. To show how we are able to cover the deficiency the computation is as follows: Deficiency ₱ 2,904.00 Divided by the rate computed 69% Total increase in revenues ₱ 4,208.70 Divided by actual cash collection and cash available 21,360.00 Total increase in revenues 19.7% This would result an increase of 19.7%, however, Dr. Jones must need be concern and attentive on how much is the pricing of the other services of dentistry in the area offers, and compare it to his quality of service. If the increase is possible, then this could be combined with the other approaches to use the funds for his deficiency. We would prefer that Dr. Jones should consider accepting the combination of the approaches rather than using only one form of the approach like the increase in fees and working extra hours found in Approach #3 and Approach #1 respectively, but other than that Dr. Jones must do extra effort and improve its skills enable for him to be worthy of increasing his fees, so that his patients won’t disagree or leave because of the increase of fees. It Dr. Jones, as he is responsible in managing his business, must align his goals to his professional organization. In his profession he already knew what instances he could make to be able to excel among the other dentistry offices, thus he must try to attain his goals by following and offering high standard services. Dr. Jones should lead wisely because his goals are the goals of his organization. If he effectively manages the business in the right ways, he would be able to surpass all other circumstances same as the problem of the deficiency being discussed in this problem. Case 3 1. Comment on the ethics of Linda’s behavior. Are her actions right or wrong? What role does the company play in encouraging her actions? Linda's behavior is unethical. In the budgeting process, she ensures that she could achieve the budget (either this year or next) by manipulating the accounting procedures. This manipulation of hers is not in accordance to the Generally Accepted Accounting Principles (GAAP). She is deliberately misrepresenting the capabilities of her division for personal gain too. As a result, her decisions are based on her own personal interest rather than on the interest of the company. This deceptive and manipulative behaviour displayed by Linda for her personal gain is clearly wrong. 2. Suppose that you are the marketing manager for the division, and you receive instruction to defer the closing of sales until the next fiscal year. What would you do?
As a marketing manager, I would find out first why the request is being created. If there's no sound reason I wouldn't hesitate to refuse provided that there's an unsound reason offered. In addition, if it takes on the nature of an order and no sound reason exists, I will consider appealing to a higher-level manager. Definitely, deferral of closings in order to have a higher probability of achieving budget for the upcoming year is wrong and not a sound reason. 3. It would certainly be so hard to go against a common practice especially when it seems to have the approval of the plant managers. The widespread knowledge of the practice may even suggest that the higher-level management is already aware of it but just condone the practice - or at least adjusts for it. So, if that is the case wherein the higher-level management is aware of the practice and adjusts for it, the ability to achieve bonus may not be so well as much as believed. The plant manager could find out and investigate the extent to which upper-level management is aware of padding. Also, the manager could get some advice regarding the behavior that he should ought to possess. If told that the practice is acceptable, then it is up to the manager whether to continue in an organization that accept deceptive behavior or go against it and simply report what he believes to be achievable by the plant. 4. This is absolutely a violation of the ethical code. As a management accountant I should practice fair presentation and observe transparency at all times when providing a report of information. I should also disclose all information which may affect a user's understanding of accounting reports. I must perform my duties in accordance with relevant laws, regulations and standards.