Question

Exercise 9-30 Professional Services Budget; Dental Practice; Activity-Based Budgeting (LO 9-3, 9-4, 9-5)

Metropolitan Dental Associates is a large dental practice in Chicago. The firm’s controller is preparing the budget for the next year. The controller projects a total of 54,000 office visits, to be evenly distributed throughout the year. Seventy percent of the visits will be half-hour appointments, and the remainder will be one-hour visits. The average rates for professional dental services are $65 for half-hour appointments and $120 for one-hour office visits. Ninety percent of each month’s professional service revenue is collected during the month when services are rendered, and the remainder is collected the month following service. Uncollectible billings are negligible. Metropolitan’s dental associates earn $100 per hour.

Metropolitan uses activity-based budgeting to budget office overhead and administrative expenses. Two cost drivers are used: office visits and direct professional labor. The cost-driver rates are as follows:

Patient registration and records	$	3.00	per office visit (of any length)
All other overhead and administrative expenses	$	8.00	per direct professional labor hour

Required:

1. Prepare the direct-professional-labor budget schedule for the month of June.

2. Prepare the budget schedule for cash collections during June for professional services rendered during May and June.

3. Prepare the overhead and administrative expense budget schedule for the month of June.

Answer 1

Solution 1:

Professional services in June:
One hour- visits	1350	hours
Half- hour visits	1575	hours
Total direct professional labor	2925	hours
Hourly rate for dental associates	$100.00
Total direct professional labor costs	$292,500.00

solution 2:

Particulars	May	June
Half hourly visits	3150	3150
Billing rate	$65.00	$65.00
Total billings for half hourly visits	$204,750.00	$204,750.00
One hour visits	1350	1350
Billing rate	$120.00	$120.00
Total billings for one hour visits	$162,000.00	$162,000.00
Total billings during month	$366,750.00	$366,750.00
% of month billings collected during june	10%	90%
Collections during june	$36,675.00	$330,075.00
Total collections in june		$366,750.00

Solution 3:

Overhead and administrative expense budget - June
Patient registration and records (4500*$3)	$13,500.00
Other overhead and administrative expenses (2925*$8)	$23,400.00
Total	$36,900.00