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    Management Accounting : Reducing Budgets ( Committed and Discretionary Spending )

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    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?

    (See attached for full financial details)

    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.

    keywords: reductions

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    Solution Preview

    Please see attached file.

    To be able to answer the questions and decide on costs that could be cut, we must divide costs into discretionary and committed costs. Discretionary Fixed Costs (also known as Managed Fixed Costs) usually arise from annual decisions by management to spend in certain fixed costs. There are basically 2 differences between Discretionary and Committed Fixed Costs; 1) The planning horizon for Discretionary Fixed Costs is fairly short-term, usually a single year; and 2) Discretionary Fixed Costs can be cut for short periods of time with minimal damage to the long-run goals of the organization.

    In the attached excel sheet I listed ...

    Solution Summary

    Reducing a budget is discussed. The solution is detailed and well presented.