Question

The Horizon Healthcare Foundation was formed to solicit donations that support certain initiatives of the Horizon Hospital. The Foundation is a separate legal entity that meets all the relevant IRS criteria for foundations. David, the hospital controller, has prepared an operating budget for the coming year that includes all revenues and expenses of the foundation within the hospital’s budget. Peggy, the hospital CFO, tells David to remove the Foundation expenses and revenues. What is correct operating budget procedure in this case?

Answer 1

Options:

Leave the foundation revenues and expenses in the hospital's operating budget.

Remove the foundation revenues and expenses because it is a separate legal entity.

Remove the foundation revenues and expenses because Peggy doesn't get along with the foundation's director.

Peggy and David will work together to form a new agreed-upon budget.

Answer:Remove the foundation revenues and expenses because it is a separate legal entity.

Explanation:

The operating budgets can be described as the total amount planned to be expended for the overall day to day operation or running of an organisation. Manufacturing budget is critical to the successful operation of an organisation.

Types of cost that can be included in an Operating budget they include

Manufacturing costs such as MATERIALS, labor, and overhead or merchandise purchases, selling expenditures, and general and administrative expenditures.

Answer 2

Answer: B.

Remove the foundation revenues and expenses because it is a separate legal entity.

Explanation: An operating budget can be defined  as an estimate of the amount of money or resources earmarked for a particular institution, activity or time frame. This involves the revenues and expenses estimated for a particular period of time.

Peggy, the hospital's CFO was right in telling David to remove the Foundation's budget because since the foundation is a separate legal entity, they should have a separate Operating budget.