In: Accounting
Using the following information ... to forecast the incremental expected Profit or Loss from the new clinic.
Generic Hospital is contemplating the opening of a clinic in an underserved rural community. The marketing people project 5,000 office visits in year one with an average charge of $100 per clinic visit. The consensus is that half of the visits will be Medicare patients with an average payment of $50 per visit. Thirty percent (30%) of the visits are expected to be from patients insured with BC with the expectation for payment set at 80% of the average charge. Another 15% of the patients will have some form of Medicaid coverage with an expected payment of $20 per visit. The remaining patients are expected to be bad debt and charity care with no payment. The expenses consist of $120,000 for salary and benefits. This covers one nurse practitioner and one all purpose assistant. The office lease, insurance, and other fixed costs are projected to be $60,000 per year. The hospital would borrow $20,000 (Debt) from the Bank to buy used Equipment to outfit the office. The interest on the loan would be $1,500 in year one. The equipment to outfit the space cost $20,000 and has an expected useful life of 5 years. The variable cost for such items as supplies, forms, and postage is estimated at $10.00 per visit. Assuming no allocation of any corporate overhead, compute the forecasted year 1 profit or loss.
(do not to confuse Balance Sheet items with those needed to prepare a forecasted P&L)
Particulars | Amount | ||
Revenue from operations | $ 260,000.00 | ||
(Note 1) | |||
Less: | Expenses | ||
Salary and benefits | $ 120,000.00 | ||
Office lease, insurance, fixed costs | $ 60,000.00 | ||
Interest on loan | $ 1,500.00 | ||
Depreciation (Note 2) | $ 4,000.00 | ||
Other variable costs (5000* $ 10) | $ 50,000.00 | $ 235,500.00 | |
Profit for the year | $ 24,500.00 |
Note 1 | Revenue from operations | ||
No. of patients | Rate | Amount | |
50% of 5000 = 2500 | $50 | $ 125,000.00 | |
30% of 5000 = 1500 | 80% of $ 100 = $ 80 | $ 120,000.00 | |
15% of 5000 = 750 | $20 | $ 15,000.00 | |
Total | 4750 | $ 260,000.00 |
Note 2 | Depreciation | ||||
Rate of depreciation = | Cost/Useful life | ||||
= | $ 20000/5 years | ||||
= | $ 4,000.00 | ||||
Therefore, each year, $ 4000 depreciation would be charged |
Since in revenue from operations, I've only considered the patients who are paying their above mentioned visiting charges, there's no need to consider bad debts separately. Had i considered the average charges of $ 100 per visit, consideration of bad debt would had been needed too.