Question 1: Budget (20 marks in total)

Bathurst Medical Center provides a wide range of hospital services. The hospitals board of directors has recently authorised the following capital expenditures:

Neonatal Care equipment	$900,000
CT Scanner	800,000
X-ray equipment	650,000
Laboratory equipment	1,450,000
	$3,800,000

The expenditure is planned for 1 October, and the board wishes to know the amount of borrowing, if any, is necessary on that date. Jane Griggs, the management account, has gathered the following information to be used in preparing an analysis of cash flows:

Actual billings for the first six month of this year, made in the month of service, are as follows:

Month	Actual amount $
January	4,400,000
February	4,400,000
March	4,500,000
April	4,500,000
May	5,000,000
June	5,000,000

Ninety per cent of the hospitals billings are made to health funds such as Medicare and private health insurance companies. The remaining 10 per cent of billings are made directly to patients. Historical patterns of billing receipts are presented as follows:

	Health fund billings %	Direct patient billings %
During month of service	20	10
During month following service	5	40
During second month following service	20	40
Uncollectable	10	10

Estimated billings for the last six months of this year are listed below. The same billing and collection patterns that have been experienced during the first six months of this year are expected to continue during the last six months of the year.

Month	Estimated amount $
July	4,500,000
August	5,000,000
September	5,500,000
October	5,700,000
November	5,800,000
December	5,500,000

Month	Actual amount $	Planned/Actual
April	1,100,000	actual
May	1,200,000	actual
June	1,200,000	actual
July	1,250,000	planned
August	1,500,000	planned
September	1,850,000	planned
October	1,950,000	planned
November	2,250,000	planned
December	1,750,000	planned

Required:

1. Prepare a cash budget for the third quarter of the year (July to September) that includes:
   • budgeted cash receipts by the month
   • budgeted cash payments by the month
2. Determine the amount of borrowing, if any, necessary on 1 October in order to acquire the capital expenditure items totaling $3,800,000.

The table preceding the last table is the budgeted amount and the last table is the planned or actual amount. I hope this is clear now.