Question

In: Finance

1. Bronx Lebanon Diagnostic Care has the following cost structure: Fixed Costs $800,000 Variable cost per...

1. Bronx Lebanon Diagnostic Care has the following cost structure:

Fixed Costs $800,000

Variable cost per procedure $35

Charge (revenue) per procedure $110

Assume that the Bronx Lebanon Diagnostic Care expects to perform 7,500 procedures in the coming year.

a. Construct the groups base case projected P & L statement.

Insert your response here.

b. What is the group’s contribution margin?

Insert your response here.

c. What is the breakeven point? (in number of procedures)

Insert your response here.

d. Let say they contract with one HMO for all 7,500 procedures and the plan proposes a 20 percent discount from charges. Answer questions a,b,c under these conditions. Insert your response here.

Solutions

Expert Solution

a. P&L Statement

Revenue = 7500 Procedures * 110 = $825,000

Variable Cost = 7500 * 30 = $262,500

Fixed Cost = $800,000

Total Cost = 1,062,500

Net Loss = -$ 237,500

b. Contribution Margin

As we know that the Contribution Margin is Net Sales - Total Variable Expenses

= 825,000 - 262,500

= $562,500

c. Break Even Point

So as we know that break even point can be given by

(No of procedures * Revenue per Procedure) - ( No of procedures * variable cost per Procedure) - Fixed Cost = 0

(x*110) -(x-35) - 800000 = 0

75x - 800000 = 0

x = 800000/75

x = 10,666.666

So the Break Even would be achieved at 10,667 procedures.

d. If the contract demands 20% from the procedured then the company would give up only $22 on a single procedure in terms of variable cost so it will be better for them as per procedure variable cost would be lowered.


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