Question

You are considering starting a walk-in clinic. Your financial projections for the first year of operations are below. Revenue and variable costs are based on the projected number of visits. Medical and administrative supplies are variable costs; all other costs are fixed costs. Medical and administrative supplies are variable costs; all other costs are fixed costs. Projected Visits Revenues Wages & benefits Rent Depreciation Utilities Medical supplies Administrative supplies 15,000 $750,000 300,000 15,000 40,000 7,500 65,000 12,000 a. Construct the clinic's projected P&L statement b. What is the total contribution margin? c. What is the contribution margin rate (rounded to the nearest dollar)? d. What is the clinic's breakeven point? e. What is the economic breakeven for a profit of $100,000?

Answer 1

a)

Projected Profit and Loss statement
Particulars	Debit	Particulars	Credit
Wages & Benefits	300000	Sales Revenues	750000
Rent	15000
Depreciation	40000
Utilities	7500
Medical supplies	65000
Administrative supplies	12000
Projected Profit	310500
	750000		750000

b)

Variable cost = 65000 + 12000 = 77000. Variable cost per unit = 77000 / 15000 = 5.133

Fixed cost = 300000 + 15000 + 40000 + 7500 = 362500

Contribution margin = (750000 - 77000) / 750000 = 89.73%

c) Contribution margin per unit = (750000 - 77000) / 15000 = 44.867 = $ 45 per unit

d) Clinic's break even point = 362500 / 44.86666666666666 = 8079.50 = 8080 visits

e) Economic break even for profit of $ 100000 = (362500 + 100000) / 44.8666666666666 = 10308.32 = 10309 visits