In: Accounting
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 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 | |