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    Cutting Costs for an Uptown Clinic

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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 reduce 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

    * 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

    Outpatients mental health treatment
    *Psychiatrist $86,000
    *Two Social Workers $70,000


    1. Give a dollar range of costs to reduce budgets ( worst and best case analysis).

    2. You need to cut $94,000 in cost. Prioritize those cuts that can be made without impacting the operation or quality care of the organization.

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

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    Solution Preview

    [Solution also available in Word for clearer formatting.]

    1. Give a dollar range of costs to reduce budgets (worst and best case analysis).

    In the worst case situation, it means that the budgets have been cut to the extent that Dr. White could keep only the necessary and most critical services as follows: -

    *Administrator $60,000
    *Assistant 0
    *One Secretary $21,000
    Supplies $17,500
    Advertising and promotion 0
    Professional meetings/dues 0

    Purchased Services:
    *Accounting and billing $15,000
    *Custodial $13,000
    *Security $12,000
    *Consulting 0

    Community Mental Health Services:
    Salary (one social worker) $23,000
    Transportation $10,000

    Outpatient mental health treatment
    *Psychiatrist $86,000
    *One Social Worker $35,000
    Total $282,500

    In the best case analysis, we expect that there would be only some costs of the services, which will not affect the qualities of the services provided by the clinic to the community will be cut as follows: -

    Salaries: ...

    Solution Summary

    This solution finds where costs can be cut and ranks the importance of the different cuts in order to make a new budget plan. Attached as 2 pages in Word with tables.