This case is penned for a beginner level MBA course, or a genera MBA course related to management and control designs. It allows insight into 1. The fundamental assumptions taken into considerationduring the process of making an operating plan; 2.Assessing the disparity that occurs between the real and the planned financial results, which takes into account the creation of an adaptable expense budget, numerically understanding the effect of profit on different business risks which influence revenue, and forming a detailed statement of the real and the forecasted profits; and 3. contemplating over some ground concerns regarding the performance behavior and assessment of line managers. The CEO of Bellaire Clinical Labs, Inc. has just finished her first discussion of the company’s financial performance for the year 1998 with the CFO. In drawing a contrast between the actual financial gains of 1998 with the operating plan that was designed, the CEO appeared to be worried because the revenues were higher than the forecasted ones, but the higher revenue did not lead to increased profitability. The CFO is given the task of looking into the matter.
Budgeted Income Statement
Routine Test, Speciality Test, Total operating revenue
Calculation for operating expenses
Material Costs, Labor costs
Maintenance, sanitation utilities costs
Billing and collection expense
Annual Advertising Expense
Salaries expense Other
Prepare a budgeted income statement for 2003 based on the information. You may want to re-list your assumptions. What additional assumptions did you have to make, if any?
What issues would you bring up with Wilma Lands? Why?
Was Marty Walters’s material cost per test of $2.70 in 2003 reasonable? How could such a cost reduction be achieved?
What benchmarks should Bellaire use to gauge the reasonableness of the budget? Name some companies that Bellaire might want to compete with.