Business / Managerial Accounting

Managerial Accounting

This essay Managerial Accounting is available for you on Essays24.com! Search Term Papers, College Essay Examples and Free Essays on Essays24.com - full papers database.

Autor:  anton  08 December 2010
Tags:  Managerial,  Accounting
Words: 987   |   Pages: 4
Views: 307

Business owners, managers and administrators all have to make tough decisions when it comes to cutting business costs. Often these cuts in budgets can jeopardize service, so the key is to make the cuts in areas that will allow the business to continue to function and provide needed services. When considering these costs a distinction must be made between committed costs and discretionary costs. Committed costs include mortgage or lease payments, investment payments and long-term debt, property taxes, insurance and salaries of people key to the business. Discretionary costs include items like advertising and promotion costs, public relations, research and development costs, charitable donations, employee training programs, and consulting services (Horngren, Sundem & Stratton, 2005).

Dr. White, Chief Administrator of the Uptown Clinic has to plan for reduced budgets and must identify costs that can be cut and still allow the agency to function. Worst case analysis would require major cuts in the area of $94,000 with best case analysis requiring minor cuts of around $35,000. An adequate range of costs to reduce the budget would be between $35, 000 and $94,000. The next page includes a table indicating suggested budget cuts.

The budget shown here reflects minor budget cuts to some services and major cuts to salaries and services for Uptown Clinic. Under this budget no changes were made to salaries of key personnel. The first set of minor changes would not impact service to clients, but would require staff to do without some luxuries they had been used to. First supplies would have to be cut by $15,000. This would include office supplies for secretarial and other staff. The clinic could save money by purchasing less or cheaper copy paper, cheaper pens, paperclips, staplers, staples etc. The list could go on. Whatever is being included in these supplies will have to be reduced by $15,000. Obviously they purchased expensive supplies. Some offices include coffee, cups, plastic ware, and other miscellaneous items in their office supply orders, which should be cut altogether.

Expenses

Original Costs

Committed

Costs

Discretionary Costs Proposed

Minor

reduction

Original costs

Committed

Costs

Discretionary

Costs Proposed

Severe reduction

Administration

Administrator $60,000 $60,000 0 0 $60,000 $60,000 0 0

Assistant $35,000 $35,000 0 0 $35,000 $35,000 0 0

2 secretaries $42,000 $42,000

1full/1prt. time 0 0 $42,000 $22,000

(1 secretary) 0 $22,000

Other Costs

Supplies $35,000 0 $20,000 $15,000 $35,000 0 $15,000 $20,000

Ads and Promo. $9000 0 $3000 $6000 $9000 0 $1000 $8000

Professional meetings/dues $14,000 $4000 $10,000 $19,000 0 $7000 $7000

Purchases Services

Accounting/Billing $15,000 0 $10,000 $5000 $15,000 0 $5000 $10,000

Custodial $13,000 0 $10,000 $3000 $13,000 0 $6000 $7000

Security $12,000 0 $6000 $6000 $12,000 0 0 $12,000

Consulting $10,000 0 $5000 $5000 $10,000 0 0 $10,000

Community Mental Health

Salaries

2 social workers $46,000

$46,000

0 $0 $46,000 $23,000 0 $23,000

1 soc. wrkr.

Transportation $10,000 $5000 0 $5000 $10,000 $3600 $6400

Outpatient Mental Health

Psychiatrist $86,000 $86,000 0 0 $86,000 $77,400 0 $8600

Salaries

2 social workers

$70,000 $70,000 0 0 $70,000 $35,000 0 $35,000

Totals $45,000 $149,020

Advertising and promotion should be cut to a minimal amount. Dr. White could do some free self promotion of the clinics services within the community at civic function, send flyers to local churches and community organizations. The minimal cost they would incur would be for newspaper advertising or yellow page advertising. Under the severe reductions this cost is even less. If you service enough people in a given community, news of your services will spread by word of mouth and through referrals from other agencies. Professional meetings and dues should not necessarily be an agency cost, but an individual cost. Staff can be asked to pay part of their cost for any kind of professional development and they should pay their own dues for membership in these organizations.

Accounting and billing services could be reduced by possibly purchasing accounting software such as Quicken and train a staff member to use it. At the end of the year in preparation for tax time, a minimal cost could be paid for a CPA to look over their records. Custodial could be cut down to a part time position and security could be cut out all together or the clinic could invest in a security system which would cost about $500 for the whole year.

Under the more severe budget reductions the psychiatrist’s salary has been cut by 10% simply because that is the highest salary. Other positions were totally cut from the budget. The secretarial and social workers have been cut down to one each. This will still allow clients to be services, but will require social workers to take on larger case loads, the same for the secretarial staff.

All in all under this scenario Dr. White could cut up to $149,020 from the Uptown Clinic’s budget and still be able to service clients, how effectively I am not sure. If any of these cuts seem too severe there is room for her to reduce the proposed cuts and keep more services. The best-case would be to start with the $45,000 of cuts and add on to that until she has reached an acceptable level in the budget and still be able to service clients. Every year when Dr. White sits down to prepare a budget, she must always take into consideration what services she absolutely needs to keep and to what degree and which ones can be eliminated.

On my job I have sat in on board meetings where budgets are being discussed for the school I work at. The most difficult thing to do is to make cuts in services in areas that won’t impact children’s education, but may leave an adult unhappy. I cannot tell you how many of these meetings I have left angry or unhappy. We have had to cut a program from our budget that was very vital to the children but to costly to maintain. We have also had to eliminate positions of very close colleagues. It is painful, but often necessary to do. I have to remember schools are businesses also and have to watch their bottom line just like any other business. A school may not be looking to make a profit, but to just stay out of the red and maintain an operating fund surplus.

References

Horngren, Charles T., Sundem, Gary L., Stratton, William O. Introduction to Management Accounting, Thirteenth Edition. Pearson Education, Inc., Upper Saddle River, New Jersey 07458.

Martin, James R., Management Accounting: Concepts, Techniques & Controversial Issues, Chapter 6, The Traditional Two Stage Cost Allocation Approach; as retrieved from website: www.maaw.info/Chapter6.htm#Allocating%20Service%20Department%20Costs; September 9, 2006.



Get Better Grades Today

Join Essays24.com and get instant access to over 60,000+ Papers and Essays

closeLogin
Please enter your username and password
Username:
Password:
Forgot your password?