Question

5.3 Assume that a radiologist group has the following cost structure:

Fixed costs $500,000

Variable cost per procedure $25

Charge(revenue) per procedure $100

Furthermore, assume that the group expects to perform 7,500 procedures in the coming year.

a. Construct the group's base case projected P & L statement.

b. What is the group's contribution margin? What is the breakeven point?

c. What volume is required to provide a pretax profit of $100,000? A pretax profit of $200,000?

e.Now assume that the practice contracts with one HMO, and the plan purposes a 20 percent discount from charges. Redo question a, b, c, and d under these conditions.

Please write it out so I can follow it. No pictures. TY

Answer 1

Answer to Requirement a:
Revenue	$                  750,000.00
Less: Variable Costs (7500 x $25)	$                 (187,500.00)
Contribution Margin	$                  562,500.00
Less: Fixed Costs	$                 (500,000.00)
Net Operating Income	$               62,500.00

Answer to Requirement b:
Sub Part 1: Calculation of Contribution Margin:
Contribution Margin =	Revenue Per Unit - Variable Cost Per Unit
=	$100 - $25
=	$75.00
Sub Part 2: Calculation of Breakeven Point:
Breakeven Point in Units =	Fixed Costs/ Contribution Margin Per Unit
=	$500,000/$75
=	6667	Processes

Answer to Requirement c:
Sub Part 1: Calculation of Volume Required to provide Pretax Profit of $100,000:
=	(Fixed Costs + Required Profit)/Contribution Margin Per Unit
=	($500,000 + $100,000)/$75
=	8000	Processes
Sub Part 2: Calculation of Volume Required to provide Pretax Profit of $200,000:
=	(Fixed Costs + Required Profit)/Contribution Margin Per Unit
=	($500,000 + $200,000)/$75
=	9334	Processes