Question

In: Accounting

5.3 Assume that a radiologist group has the following cost structure: Fixed costs $500,000 Variable cost...

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

Solutions

Expert Solution

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

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