Dr. Roger Jones is a successful dentist but he is experiencing recurring

Dr. Roger Jones is a successful dentist but he is experiencing recurring financial difficulties. For example, Dr. Jones owns his office building, which he leased to the professional corporation that housed his dental practice (he owns all shares in the corporation). However, Dr. Jones recently received a registered letter from the Internal Revenue Service threatening to impound his business and sell its assets for the corporation’s failure to pay payroll taxes for the past six months. Also, the corporation has had difficulty paying its suppliers, owing one of the over $200,000 plus interest. In the past, Dr. Jones solved similar problems by borrowing money on the equity in either his personal residence or his office building. Not surprisingly, Dr. Jones has grown weary of these recurring problems and has hired a local consultant for advice on how to fix his financial problems.
According to the analysis of the consultant, the financial difficulties facing Dr. Jones have been caused by the absence of proper planning and control. Budgetary control is sorely needed. To assist you in preparing a plan of action that will help his dental practice regain financial stability, Dr. Jones has made available the financial information describing a typical month in the following table.
Revenues
Average Fee ($) Quantity
Fillings 50 90
Crowns 300 19
Root Canals 170 8
Bridges 500 7
Extractions 45 30
Cleaning 25 108
X-rays 15 150

Costs

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Salaries
Two dental assistants $1,900
Receptionists/bookkeeper $1,500
Hygenist $1,800
Public relations (Mrs. Jones) $1,000
Personal Salary $6,500
Total Salaries $12,700
Benefits 1344
Building lease 1500
Dental supplies 1200
Janitorial 300
Utilities 400
Phone 150
Office Supplies 100
Lab fees 5000
Loan payments 570
Interest payments 500
Miscellaneous 500
Depreciation 700
Total Cost $24,964
Benefits include Dr. Jones share of social security and a health insurance premium for all employees. Although all revenues billed in a month are not collected, the cash flowing into the business is approximately equal to the month’s billings because of collections from prior month. The dental office is open Monday through Thursday from 8:30 am to 4:00 pm and on Friday 8:30 am to 12:30 pm. A total of 32 hours are worked each week. Additional hours could be worked, but Dr. Jones is reluctant to do so because of other personal endeavors that he enjoys.
Dr. Jones has noted that the two dental assistants and receptionist are not fully utilized. He estimated that they are busy about 65 to 70 percent of the time. Dr. Jones wife spends about five hours each week on a monthly newsletter that is sent to all patients; she also maintains a birthday list and sends cards to patients on their birthdays.
Dr. Jones spends about $2400 yearly on informational seminars. These seminars, targeted especially for dentists, teach them how to increase their revenues. It is from one of these seminars that Dr. Jones decided to invest in promotion and public relations (the newsletter and the birthday list)
Required:
1. Prepare a monthly cash budget for Dr. Jones. Does Dr. Jones have a significant cash flow problem? How would you use the budget to show Dr. Jones why he is having financial difficulties?
2. Using the cash budget prepared in Requirement 1 and the information given in the case, recommend actions to solve Dr. Jones’s financial problems. Prepare a cash budget that reflects these recommendations and demonstrates to Dr. Jones that the problems can be corrected. Do you think that Dr. Jones will accept your recommendations? Do any of the behavioral principles discussed in the chapter have a role in this type of setting? Explain