Cost Management

Program Area Costs Program Area Revised Costs

Administration Administration

Salaries Salaries

Administrator 60,000 Administrator 60,000

Assistant 35,000 Assistant (cut) 0

Two Secretaries 42,000 Two Secretaries (cut 1 Secretary) 21,000

Supplies 35,000 Supplies 35,000

Advertising and Promotion 9,000 Advertising and Promotion (cut) 0

Professional Meetings/Dues 14,000 Professional Meetings/Dues (cut) 0

Purchased Services Purchased Services

Accounting and billing 15,000 Accounting and Billing 15,000

Custodial 13,000 Custodial 13,000

Security 12,000 Security 12,000

Consulting 10,000 Consulting (cut) 0

Community Mental Health Services Community Mental Health Services

Salaries (2 social workers) 46,000 Salaries (2 Social Workers) 46,000

Transportation 10,000 Transportation (cut by Ð…) 5,000

Outpatient Mental Health Services Outpatient Mental Health Services

Salaries Salaries

Psychiatrist 86,000 Psychiatrist 86,000

2 social workers 70,000 2 Social workers 70,000

Total Cost 457,000 Total Cost 363,000

Fixed Costs Planned Amounts

Committed

Administrator 60,000

Secretary 21,000

Supplies 35,000

Accounting and Billing 15,000

Custodial 13,000

Security 12,000

4 Social Workers 116,000

Transportation 5,000

Total Committed 277,000

Discretionary

Assistant 35,000

Secretary 21,000

Advertising/Promotion 9,000

Professional Meetings/Dues 14,000

Consulting 10,000

Transportation 5,000

Total Discretionary 94,000

Total Committed and Discretionary 457,000

The above statement itemizes what needs to be cut in order to fulfill the requirements of a reduced budget in the upcoming years. We are looking at a community mental health facility so we know that we can not cut the psychiatrist or the social workers. Their total salaries are $202,000 a year. The administrator also does not need to be cut. ($60,000) These people are key members of the facility. These costs would be considered capacity costs. They are fixed costs that are needed to attain the level of output needed. (Horngren, Sundem, and Stratton, 2005) Other costs that do not need to be cut are supplies, accounting and billing, custodial, and security. The total of these costs are $75,000. Costs have know been cut to accommodate a total annual budget of $337,000 (Worst case scenario).

A total of $94,000 needs to be cut from the previous budget of $457,000. Looking at the worst case scenario of cutting secretaries, the assistant, transportation, consulting, advertising and promotion, and professional meetings/dues we can note that we are

$26,000 under budget for the new upcoming budget. If we add one secretary ($21,000) and cut Ð… of the transportation costs ($5,000) we will fall into line with a budget of $363,000. (Best case scenario)

In order to prepare for reduced budgets Dr. White will have to restructure the resources of the facility to meet the needs of the budget and the needs of the patient. She must examine the cost functions in order to plan and control the activities of the mental health facility that will require accurate and useful estimates of future costs. (Horngren, Sundem, and Stratton, 2005)

References

Horngren, Charles T., Sundem, Gary L., and Stratton, William O., (2005). Introduction to Management Accounting Thirteenth Edition. Upper Saddle River, N.J. Pearson Prentice Hall.