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LABORATORY BUDGET

KEY TERMINOLOGIES

ASSET VS. EXPENSES

KEY TERMINOLOGIES

CAPITAL EXPENDITURES (CAPEX) VS REVENUE EXPENDITURES (OPEX)

WHAT IS BUDGETING

The process of planning, forecasting, controlling, and monitoring the financial resources of the organization

IMPORTANCE OF BUDGETING

For OPEX To anticipate the sources (income) and uses (expenses) of funds in short period of time or within one year

IMPORTANCE OF BUDGETING

For CAPEX To determine what kind of assets are needed by the company and the capacity or ability of the company to purchase such assets

T YPES OF BUDGETING

OPERATIONAL BUDGETING (OPEX)


Flexible budgeting Zero-based budgeting

CAPITAL BUDGETING (CAPEX)

I. THE OPERATIONAL BUDGET

The process of planning for the laboratory as an ongoing business concern; accounting for everyday needs and expenditures

I. THE OPERATIONAL BUDGET

Flexible Budgeting: A budgeting process that attempts to set expenditures based on a variable workload volume Zero-Based Budgeting: A method that analyzes needs based on prioritizing of goals and objectives and not on past allocations

OPERATIONAL BUDGET PREPARATION

1. Time Frame the annual budget, which covers 1 year or budget cycle, is the main working guidelines for management.

OPERATIONAL BUDGET PREPARATION 2.Forecasting Stage factors:


i. Shifts in patient mix or volume ii. Changes in medical staff composition iii. Changes in business parameters such as inflation and reimbursement rates iv. Expansion or cutbacks in services offered by the hospital or laboratory v. Population fluctuations brought about by changes in the local economy

OPERATIONAL BUDGET PREPARATION

3. Scheduling Stage when budget is prepared.

OPERATIONAL BUDGET PREPARATION 4. Synthesis of information how the financial information is organized is very important. The budget report is organized into three parts: i. Revenue and volume figures ii. Itemized cost categories iii. FTEs and labor hours

ILLUSTRATION (PRO-FORMA INCOME STATEMENT)


OPERATIONAL BUDGET (Income vs. Expenses)
Service Income Complete Blood Count (P120 x 12,000px) P1 ,440,000 Routine Urinalysis (P100 x 6,000px) 600,000 Routine Fecalysis (P100 x 3,600px) 360,000 P2,400,000 Less: Cost of Service Reagents (P50 x 12,000units) P600,000 Syringe (P350 x 120 boxes) 42,000 EDTA Tubes (P450 x 120 boxes) 54,000 Plastic cups (P50 x 192 packs) 9,600 Salaries and Wages (P20,000 x 12 mos) 240,000 945,600 Gross Margin P1 ,454,400

ILLUSTRATION
OPERATIONAL BUDGET (Income vs. Expenses)
Gross Margin Less: Operating Expenses Utilities Expense Advertising Expense Rent Expense Repairs and Maintenance Office Salaries Insurance Expense Depreciation Expense Net Income before taxes Less: Tax Expense Net Income P1 ,454,400 P 43,000 10,000 100,000 50,000 180,000 4,500 50,000

437,500 P1 ,016,900 305,070 P 711 ,830 =========

CAPITAL BUDGETING Two types of analysis: 1. Narrative description: includes a written justification of the project and a prioritization of the competing proposals.
i. Justification a detailed rationale for a request; why the project is needed, how it will benefit the laboratory, and why it should be considered over competing projects.

ii. Prioritization an additional step in justification is to prioritize the project, both in the time frame and in relation to other requests; capital budget forms are scaled according to rank priority iii. Opportunity Costs the value of what is given up to pursue another project, it must be part of the overall decision making process

ILLUSTRATION
CAPITAL BUDGET 2 Computer Units @ P30,000 each P 60,000 1 Microscope @ P120,000 each 120,000 Total Capital Expenditure for 2013 P180,000 =======

2. Quantitative techniques: use to determine the financial feasibility of the project. Methods used are:
i. Payback Period the length of time it will take to recover the cash outlays for a project. ii. Average Rate of Return the average yield over the life of an investment iii. Net present Value (NPV) the worth of future earnings at todays rates; Time Value of Money the future value of a dollar compared with today

iv. Internal Rate of Return The ratio of cash flow and cost-of-capital factors to the amount of investment required v. Required Rate of Return A bottom-line level of income required by a company before any project is considered.

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