Operating Budget

Topics: Finance, Corporate finance, Pharmacy Pages: 2 (524 words) Published: June 11, 2012
Operating Budget: Proposal to Add a Retail Pharmacy in the Metropolis Health System HCA311: Health Care Financing & Information Systems
Instructor: Marquita Blackwell
30 April 2012

Operating Budget: Proposal to Add a Retail Pharmacy in the Metropolis Health System
Sample General Hospital belongs to the Metropolis Health System. The new chief financial officer (CFO) at Sample General is trying to develop a plan to bring in new sources of badly needed revenue for the organization. The chief financial officer has created a proposal to incorporate a retail pharmacy into the Sample General Hospital. Based on the proposal presented by chief financial officer to include, the “3-Year Retail Pharmacy Profitability Analysis,” and the Retail Pharmacy Proposal Assumptions,” I would accept his proposal and begin implementing his plan to incorporate a retail pharmacy at Sample General Hospital.

Initially, the hospital would incur a total $130,000 in capital expenditure in costs of renovations to the hospital ($80,000) and equipment required for the pharmacy department ($50,000). However, the hospital would not have to seek outside sources or apply for a loan in order to fund the renovations. The chief financial officer has proposed that funding be obtained from the Sample General itself. Moreover, the total capital expenditure is expected to be retrieved through operating cash flows before the end of year one. Also, the retail pharmacy is projected to bring in $73,597 Year 1; $373,607 by Year 2; and $737,490 by Year 3. The CFO proposed a working capital of $49,789. Since this is a retail pharmacy proposal with pharmaceuticals, as the main product, Sample General has the advantage of financing the pharmaceuticals through the accounts payable cycle. Pharmaceutical companies allow sixty days for payment; this allows the pharmacy to carry its main inventory at no additional cost. The working capital of $49,789 came from:

Working Capital
Cost of Drugs (2 Months)...

Cited: Baker, J. J. (2011). Health Care Finance: Basic Tools for Nonfinancial Managers, Third Edition. Sadbury: Jones & Bartlett Publishers.
Edmonds, T. (2010). Survey of Accounting, 2nd Edition. McGraw-Hill Primis Custom Publishing.
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