Question

Burleson Clinic has fixed costs of $2,000,000 and an average variable cost rate of $30 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 per each of its 20,000 members = $3,000,000 regardless of the number of visits. Past experience indicates the population served will average one visits per year (for a total of 20,000 members x 1 visits per member= 20,000 visits).

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

b. Sketch out a CVP analysis graph depicting the base case situation with number of visits (volume) on the x-axis. See Exhibit 5-10. (Hint: complete the following table. Use Excel to produce the sketch. When done, copy/paste the sketch below).

# of Visits	Revenue	Fixed Costs	Total Costs
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
38,000
40,000

Answer 1

1:

Base case P&L

Revenue                           3000000

(20000*150)

Less Variable cost           600,000

(20000*30)

Contribution                    2400000

Less: Fixed costs              2000000

Net Income                     400,000

2:

# of Visits	Revenue	Fixed Costs	Variable costs	Total Costs
					0	0	2000000	0	2000000
2,000	300000	2000000	60000	2060000
4,000	600000	2000000	120000	2120000
6,000	900000	2000000	180000	2180000
8,000	1200000	2000000	240000	2240000
10,000	1500000	2000000	300000	2300000
12,000	1800000	2000000	360000	2360000
14,000	2100000	2000000	420000	2420000
16,000	2400000	2000000	480000	2480000
18,000	2700000	2000000	540000	2540000
20,000	3000000	2000000	600000	2600000
22,000	3300000	2000000	660000	2660000
24,000	3600000	2000000	720000	2720000
26,000	3900000	2000000	780000	2780000
28,000	4200000	2000000	840000	2840000
30,000	4500000	2000000	900000	2900000
32,000	4800000	2000000	960000	2960000
34,000	5100000	2000000	1020000	3020000
36,000	5400000	2000000	1080000	3080000
38,000	5700000	2000000	1140000	3140000
40,000	6000000	2000000	1200000	3200000

WORKINGS