Three Rivers Dental Associates (TRDA) is a large dental practice in Pittsburgh.

Question

Three Rivers Dental Associates (TRDA) is a large dental practice in Pittsburgh. The firm’s controller is preparing the budget for the next year. The controller projects a total of 48,000 office visits, to be evenly distributed throughout the year. Eighty percent of the visits will be half-hour appointments, and the remainder will be one-hour visits. The average rates for professional dental services are $60 for half-hour appointments and $105 for one-hour office visits. Ninety percent of each month’s professional service revenue is collected during the month when services are rendered, and the remainder is collected the month following service. Uncollectible billings are negligible. TRDA’s dental associates earn $90 per hour.

TRDA uses activity-based budgeting to budget office overhead and administrative expenses. Two cost drivers are used: office visits and direct professional labor. The cost-driver rates are as follows:

Patient registration and records .........................................$3.00 per office visit (of any length) All other overhead and administrative expenses ..............................$7.50 per direct professional labor hour

Required:         Prepare the following budget schedules.

1. Direct-professional-labor budget for the month of June.

2. Cash collections during June for professional services rendered during May and June.

3. Overhead and administrative expense budget for the month of June.

4. Build a spreadsheet: Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: a total of 54,000 office visits are expected for the year and 70 percent of the office visits are half-hour appointments.

Explanation / Answer

48000/12=4000 Direct-professional-labor budget for the month of June. half-hour appointments 4000*.80*.50 1600 one-hour visits 4000*.20*1 800 Total direct Professional hour 2400 Hourly rate of dental association 90 Total direct Professional Labor cost 216000 May June Half-hour visits 4000*.80 3200 3200 Billing rate. 60 60 Total billings for half-hour visits 192000 192000 One-hour visits 4000*.20 800 800 Billing rate. 105 105 Total billings for one-hour visits 84,000 84,000 Total billings during month. 276000 276000 Percentage of month's billings collected during June 10% 90% Collection During June 27600 248400 Total collections in June ($27,600 + $248,400). 276000 Overhead and administrative expense budget for June: Patient registration and records (4,000 visits * $3.00 per visit) 12000 Other overhead and administrative expenses 18000 Total overhead and administrative expenses 30000

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