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Using the following data to prepare a cash budget for Plains Medical Center for the first quarter of Fiscal $2022-$ October $-$ December, $2021.$ You can assume that the Medical Center will begin the fiscal year with $$6,000,000$ in cash on its balance sheet.$$

Once you compile that budget consider the following issues:

Assume the Medical Center would like to implement a policy to keep a minimum cash balance each month that equals one month of salary expense plus one month of supply $$and other expenses. In addition, they are required to keep three month's worth of mortgage payments in cash on hand each month. So your minimum cash balance must be the sum of those salary$/$expense items noted here, plus three months of debt payments. Prepare the cash budget for Plains Medical Center for the first quarter of Fiscal $2022-$ October $-$ December, $2021.$ What is the minimum cash balance that Plains Medical Center should keep each month based on these assumptions?

Look at your cash budget calculations. Are there any months where the cash balance in that month falls below that minimum? If so$,$ what management actions can you take to address this issue and be able to implement this policy? Be specific!

Plains Medical Center

Cash Budgeting Data

Estimated Patient Billings $($at expected collection amount$)$

July, $2021$ $$6,000,000$

August, $2021$ $$7,000,000$

September, $2021$ $$6,000,000$

October, $2021$ $$7,500,000$

November, $2021$ $$7,500,000$

December, $2021$ $$7,000,000$

The historic timing of collections looks like this:

Month of service $20\%$

Month following service $50\%$

Second month following service $30\%$

Total $100\%$

Salaries for each month are estimated at $$2,250,000+25\%$ of that month's billings.

$*$ Payments for Salaries are $50\%$ of the current month estimate $+50\%$ of the prior month's estimate

Supply purchases are estimated at $20\%$ of the billings in that month.

$*$ Payments for supplies are made in total in the following month, e$.$g$.,$ June supply expenses are paid in July.

Other operating expense purchases are estimated at $15\%$ of the revenues in that month.

$*$ Payments for other expenses are made in total in the following month, e$.$g$.,$ June expenses are paid in July.

Depreciation is $$150,000$ per month.

The hospital was constructed using $$18,000,000$ in mortgage debt, payable in monthly installments over $25$ years at $6\%$ annual interest. The payment is $$115,974$ per month.

Assume that cash balance beginning of fiscal year $2022$ is $$6,000,000$

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