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    Accounting/ I am a little lost and needed help with this problem

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    Dr. Stephanie White, the Chief Administrator of Uptown Clinic, a community mental health agency, is concerned about the dilemma of coping with reduced budgets next year and into the foreseeable future, but increasing demand for services. In order to plan for reduced budgets, she must first identify where costs can be cut or reduced and still keep the agency functioning. Below are some data from the past year.

    Program Area Costs
    Administration
    Salaries:
    Administrator
    $60,000
    Assistant
    $35,000
    Two Secretaries
    $42,000
    Supplies $35,000
    Advertising and promotion $9,000
    Professional meetings/dues $14,000
    Purchased Services:
    Accounting and billing
    $15,000
    Custodial
    $13,000
    Security
    $12,000
    Consulting
    $10,000
    Community Mental Health Services
    Salaries (two social workers) $46,000
    Transportation $10,000
    Outpatient mental health treatment
    Salaries:
    Psychiatrist
    $86,000
    Two Social Workers
    $70,000

    Identify which costs you think are likely to be discretionary or committed costs.

    One possibility is to eliminate all discretionary costs. What do you think of this recommendation?

    How would you advise Dr. White to prepare for reduced budgets?

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    Solution Preview

    COSTS LIKELY TO BE DISCRETIONARY
    Program Area Costs
    Administration
    Purchased Services:
    Accounting and billing
    $15,000
    Custodial
    $13,000
    Security
    $12,000
    Consulting
    $10,000
    Community Mental Health Services:
    Transportation $10,000

    COSTS LIKELY TO BE COMMITTED
    Program Area Costs
    Administration
    Salaries:
    Administrator
    $60,000
    Assistant
    $35,000
    Two Secretaries
    $42,000
    Community Mental Health Services
    Salaries (two social workers) $46,000
    Outpatient mental health treatment
    Salaries:
    Psychiatrist
    $86,000
    Two Social Workers
    $70,000

    ELIMINATING ALL DISCRETIONARY COSTS WOULD
    Reduce the costs by $60,000. However, I would not advice Dr. White to take such a ...

    $2.19

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