Question

Triangle Pediatrics currently provides 1,000 visits per year at a price of $50 per visit. The variable cost per visit (variable cost rate) is $30, and total fixed costs are $15,000. The business manager suggests that Triangle Pediatrics can increase the number of visits to 1,200 per year by cutting the price per visit by $5 and increasing the fixed advertising budget by $5,000.

Based on this scenario, what are the profits for a volume of 1,200 units?

Answer 1

Existing:

	Particulars	per visit	for 1000 visits
	Price per visit	50	50,000
(-)	Variable cost	30	30,000
	Contribution	20	20,000
(-)	Fixed Cost		15,000
	Profit		5,000

Revised as Proposed by business manager:

	Particulars	per visit	for 1200 visits
	Price per visit	45	54,000
(-)	Variable cost	30	36,000
	Contribution	15	18,000
(-)	Fixed Cost		20,000
	Profit / (Loss)		(2,000)

Based on above scenario, for a volume of 1,200 units loss = ($ 2,000)