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    Dr. Stephanie White

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    ACG420 Unit 2 IP

    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

    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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    ACG420 Unit 2 DB

    A company has two major businesses that it operates. One business manufactures and sells unicycles for commercial use in circuses, etc. (total sales of $150M), and the other sells bicycles to the public (total sales of $20M). The unicycle business occupies 75,000 square feet of the manufacturing warehouse and the bicycle business occupies the remaining 25,000 square feet. Cost were split 50-50 between the 2 businesses for advertising (total advertising expense of $5M) and warehouse expense (total warehouse expense of $3M) in the past (traditional method).

    1. What was the cost of advertising and warehouse expense allocated to each of the business based on the traditional method?
    2. What recommendation would you make in allocating these expenses to each of the business and how much would be allocated to each business?
    3. What would be some of the issues of too many expenses or too little expenses being allocated to each of the businesses?

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    Solution Preview

    Uptown Clinic: Reduce Budget

    Dr. Stephanie White, the Chief Administrator of 'Uptown Clinic' desires to revise its budget. He is also very much concerned about the dilemma of managing the issues related to the reduced budget in the next or coming years because demand for its services are increasing rapidly. The main objective of the 'Uptown clinic' is to eliminate the 'program area costs' from the budget, without affecting the organizational operational capability, image and quality care services. It is possible only when an organization is capable of identifying that costs that have minimum impact on its operational activities and also make maximum utilization of its scare economic resources.

    Dollar Range of Costs

    The worst and best case analysis is the technique used to evaluate the cost or resource usage at the highest and lowest level respectively, in the organization. With this case analysis technique, the administrator easily makes reduction in budgeted cost, in order to cope up with the uncertain situations (Headington & Riley, 1994, pg. 560). In the long run, it increases the benefit for the organization, but before taking any decision related to the cost elimination, the chief administrator should firstly make out where the cost can be cut off, in order to evaluate the impact of the all the 'program area cost' on the functioning of the agency (Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to Save Money, 2005).

    For the organizational control, Dr. Stephanie White, the Chief administrator can cut down the various program area costs i.e. salaries, supplies, advertising and promotion, community mental health services, etc. The dollar range of costs to reduce the budgets is given below:

    Program area Costs Worst Best (Reduced Amount)
    Administration Salaries $137,000 $36000
    Supplies $35000 ----
    Advertising and Promotion $9000 $4500
    Professional ...

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