Question

Assume that a radiologist group practice 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
	Total revenues			$   750,000
	Total variable costs			$   (187,500)
	Total contribution margin			$   562,500
	Fixed costs			$   (500,000)
	Profit (net income)			$   625,000
b. What is the group's contribution margin? What is its breakeven point?
	Revenue per procedure			$   100
	Variable cost per procedure			$   25
	Contribution margin per procedure			$   562,500
	Fixed costs
	Contribution margin per procedure
	Accounting Breakeven				visits
c.1 What volume is required to provide a pretax profit of $100,000?
	Fixed costs
	Target profit
	Contribution margin per procedure
	Economic Breakeven				visits
c.2 What volume is required to provide a pretax profit of $200,000?
	Fixed costs
	Target profit
	Contribution margin per procedure
	Economic Breakeven				visits
d. We are skipping
e. now assume a 20 percent discount from charges. Redo questions a, b, and c under these conditions.
redo a. Construct the group's base case projected P&L statement
	Total revenues
	Total variable costs
	Total contribution margin
	Fixed costs
	Profit (net income)
redo b. What is the group's contribution margin? What is its breakeven point?
	Revenue per procedure
	Variable cost per procedure
	Contribution margin per procedure
	Fixed costs
	Contribution margin per procedure
	Accounting Breakeven				visits
redo c.1 What volume is required to provide a pretax profit of $100,000?
	Fixed costs
	Target profit
	Contribution margin per procedure
	Economic Breakeven				visits
redo c.2 What volume is required to provide a pretax profit of $200,000?
	Fixed costs
	Target profit
	Contribution margin per procedure
	Economic Breakeven				visits

Answer 1

Answer

A.

Sales   = Fixed cost + Variable cost + Profit

Gross profit = Sales - Variable cost - Fixed cost

Gross profit = $750,000(7500 *100) -$187,500 -- $500,000

Gross profit = $62500

     

B.

Contribution margin = Sales - Variable cost

Contribution margin       =$750,000 - $187,500

Contribution margin   =$562,500

Break even point =Fixed cost/P.V ratio

Break even point ==$500,000/75 =$6667

  P/V ratio =Contribution/Sales*100

                =$562,500/$750,000*100

                =75

C.

(Fixed Costs + Specified Profit) / Contribution Margin per unit

If the Specified profit is $100,000 then sales volume is =(500000 + 100000)/75          

600000/75= 8,000           

If the Specified profit is $100,000 then sales volume is =(500000 + 200000)/75           

700000/75= 9,333

E.

Now 20% discount charges, then Each procede would cost is  $80

                                                                                  

Variable cost is =$187,500

Sales               =$600,000

Fixed cost        =$500,000

                                         

Sales - Variable cost = Gross profit

600,000 - 187,500   = Gross profit

Gross profit            =$412,500               

Net Profit               = Gross profit - Fixed cost

                            = $412,500 -$500,000

Net loss               =(-)$87500

Contribution         = Sales -Variable cost

                           =$412,500               

Break even point =Fixed cost/P.V ratio  

          

P/V ratio =Contribution/Sales*100

               =412,500/600,000   

               =69

Break even point = $500,000/69

                         =7246

Sales      = (Fixed cost + Desired Profit)/P.V Ratio

Sales volume if the desired profit is $100,000

Sales         = (500,000 +100,000)/69

                 =600,000/69

                 =8696

Sales volume, if the desired profit is $200,000

Sales         =(500,000 + 200,000)/69

                          =700,000/69

                          =10145