Financial Management PDF

FINANCIAL MANAGEMENT NEIL ALLEN ELQUINTO, RMT COLLEGE OF MEDICAL LABORATORY SCIENCE CENTER FOR MEDICAL & ALLIED HEALTH SCIENCES NEW ERA UNIVERSITY BUDGETING According to Henry Mintzberg, the roles of leader are spokesperson, budgetary or resource allocator, figureh...

FINANCIAL MANAGEMENT NEIL ALLEN ELQUINTO, RMT COLLEGE OF MEDICAL LABORATORY SCIENCE CENTER FOR MEDICAL & ALLIED HEALTH SCIENCES NEW ERA UNIVERSITY BUDGETING According to Henry Mintzberg, the roles of leader are spokesperson, budgetary or resource allocator, figurehead, decision maker and liaison. RESOURCE is the means by which goals are attained; it involves the use of money, manpower, materials, machines, spaces and market. BUDGETING is the planning document used by an organization that forecast both relationship between funds and expenses. There are two approaches in budget namely: a. Centralized – fully controlled by the leader. b. Decentralized – there is a participation of the lower level.  COMPONENTS OF INSTITUTIONAL BUDGET TYPES of BUDGET a. Fix-ceiling budget – uppermost a. Capital Expenditure – land and spending limit set by organization. major equipment, “puhunan” b. Open-ended budget – dangerous b. Manpower – salary and fringe type because it has no specific benefits amount declared. c. Operational budget – minor c. Flexible budget – one can adjust. equipment and salary needed d. Sunset budget – self destructing by the organization. and cessational budget. e. Zero based budget – start from nothing. f. Contingency budget – used during emergency  Laboratory Budgeting Process Budgeting applies to a process of planning, forecasting, controlling, and monitoring the financial resources of the organization. Operational Budget deals with the process of planning for the laboratory as an ongoing business concern auditing for everyday need and expenditures. Types of Operational Budget 1. Capital Budget – it is the process use by the organizations to plan, evaluate, and choose between future investment opportunities. It is the mechanism where the laboratory selects and authorizes the purchase of major equipment and building projects. 2. Flexible Budget – a budgeting process that attempts to set expenditures based on a variable workload volume. 3. Zero Based Budget – a method analyzes needs based on prioritizing of goals and objectives and NOT on past allocations.  Operational Budget Preparation 1. Time frame – budgets can be prepared to cover several time frames. 2. Forecasting stage – based on the extrapolation of historical data, several factors must be considered in the forecasts: Shifts in patient mix or volume Changes in medical staff consumption Changes in business parameters such as inflation and reimbursement rates. Expansion or cutbacks in services offered by the hospital or laboratory. Population fluctuations brought about by changes in local economy.  Operational Budget Preparation 3. Scheduling Stage – budget preparation schedule varies from facility to facility. The documents undergo several drafts, numerous meetings and negotiation sessions and many revisions. Some institutions start the process about 6 months before the beginning of the new budget year. 4. Synthesis of Information – it how the financial information is organized. It is presented logically in a way that it is useful to the manager of the organization. DESCRIPTION ACTUAL BUDGET VARIANCE % VARIANCE PREVIOUS YEAR ACTUAL Supplies Php. 49,212 Php. 50,132 -920 1.8 Php. 47,044 Salaries & Php. 74,887 Php. 70,055 4,832 6.9 Php. 70,625 Wages Total Php. 124,099 Php. 120,187 3,912 8.7 Php. 117,669 COST FINDING Cost Accounting – is to provide the manager with the information to operate the business. Managerial Accounting – it is another name given to this branch of accounting because of its emphasis on analyzing and providing operational information. The most prominent document generated by cost accounting is budget. Three main financial accounting statements: 1. Statement of financial positions (balance sheet) 2. Statement of income and retained earnings 3. Statement of flow funds.  COST FINDING The balance sheet provides a snapshot of the economic status of the business at a specific time. Thee are two sides to the balance sheet: assets (A) and equities (E). Recording and balancing these two sides provide the following accounting equation: Assets (A) = Equities ( E ) Assets – are the resources that the firm uses to conduct its business. They re consumed or in accounting terminology, they are engage in the day-to-day operation of the enterprise. Assets may be in the form of money as cash in the bank or accounts receivable or in the form of capital such as buildings or equipment. Equities – it consists of two parts: Liabilities and remaining value Liabilities – consists of bills owed or other obligations. Remaining Value – can be described as either stockholder equity or retained earnings, depending on the type of corporate structure.  COST FINDING Stockholder’s equity – assets left over after all obligations are satisfied. Retained earnings - the money or assets remaining after liabilities have been provided. For profit Assets = equities (liabilities + stockholder equity) Not for Profit Assets = equities (liabilities + retained earnings)  BALANCE SHEET – CENTRAL REFERENCE LABORATORY Current Assets Cash - Php. 1,225, 692 Accounts receivable - Php. 21,774,460 Less Allowances - Php. 8,167,071 Supplies - Php. 1,114,387 Other Current Assets - Php. 69,775 Total Current Assets - Php. 16,017,243  BALANCE SHEET – CENTRAL REFERENCE LABORATORY Current Assets Cash - Php. 1,225, 692 Accounts receivable - (+) Php. 21,774,460 Less Allowances - (-) Php. 8,167,071 Supplies - (+) Php. 1,114,387 Other Current Assets - (+) Php. 69,775 Total Current Assets - Php. 16,017,243  BALANCE SHEET – CENTRAL REFERENCE LABORATORY Current Assets Investments / Other Assets Property, Plant & Equipment Land - Php. 501,917 Buildings & Improvement - Php. 12,464,920 Equipment - Php. 12,829,392 Subtotal Php. 25,796,229 Less Accumulated Depreciation - Php. 992,484 Subtotal Net Fixed Assets - Php. 24,803,745 Intangible Assets - Php. 11,867 Total Current Assets - Php. 16,017,243 TOTAL ASSETS - Php. 40,832,855  BALANCE SHEET – CENTRAL REFERENCE LABORATORY Current Assets Investments / Other Assets Property, Plant & Equipment Land - Php. 501,917 Buildings & Improvement - Php. 12,464,920 Equipment - (+) Php. 12,829,392 Subtotal Php. 25,796,229 Less Accumulated Depreciation - (-) Php. 992,484 Subtotal Net Fixed Assets - Php. 24,803,745 Intangible Assets - Php. 11,867 Total Current Assets - (+) Php. 16,017,243 TOTAL ASSETS - Php. 40,832,855  JOB COSTING The important determinant in forecasting the staffing needs for the budget year is the projected volume of work. With this information, the number of labor hours needed can be projected in ratios that calculate the test performed per paid hours and/or worked hours. Using the following data for the current year, it is possible to make annual and monthly projections: Current (Actual) Year’s Data Test Volume Php. 373,332/tests Salary Expense Php. 399,942 No. paid hours Php. 39,520/hr No. benefit hours Php. 3,596/hr No. worked (productive hrs) Php. 35,924/hr  JOB COSTING Paid Productivity = 373,332 tests = 9.5 tests performed/paid per hour 39,520 paid/hour Worked Productivity = 373,332 tests = 10.4 tests/worked hour 35,924 worked hour Average hourly rate = 399,942 Salary expense = 10.12/hour paid 39,520 hour paid Next Year’s Budget Projected test volume = 408,237 tests/year (obtained from next year’s = 33,142 tests/month of May Operational budget figures) 5% average salary raise Annualized Projections Projected Average Hourly Rate 10.12 (averagely hourly rate) x 1.05 = 10.63 projected ave hourly rate Projected Total Paid FTE Budget 408,237 projected tests = 9.5 tests performed/paid/hr 42,972 paid hr needed 42,972 paid hr needed = 20.7 total paid FTEs 2,080 (FTE hr/yr)  Annualized Projections Projected Worked (Productive) FTEs Budget 408,237 projected tests = 39,254 projected worked hr 10.4 tests/worked hr. 39,254 projected worked hr = 18.9 total worked FTEs 2,080 (FTE hr/yr) Projected Salary Expense Budget 42,972 total paid hr x 10.63 ave. hourly rate = 456,792 projected salary expense  Annualized Projections Monthly projection for month of May 33,142 projected test for month of May = 3,489 total paid budgeted for 9.5 tests performed/paid hr month of May 33,142 projected tests for month of May = 3,187 worked hr budgeted for 10.4 tests/worked hr month of May 3,489 projected tests/May x 10.63 projected average hour rate = 37,088 projected salary expense for month of May