Question

Problem 2

You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows”

Revenues (10,000 visits)	$400,000
Wages and benefits	220,000
Rent	5,000
Depreciation	30,000
Utilities	2,500
Medical supplies	50,000
Administrative supplies	10,000

Assume that all costs are fixed, except medical supplies and administrative supplies, which are variable. Furthermore, assume that the clinic must pay taxes at 30 percent rate.

a. Construct the clinic’s projected P&L statement.

EXPENSES                     AMOUNT          INCOME            AMOUNT

Wages and benefits      220,000           revenue           400,000

Rent                             5,000              

Depreciation                30,000

Utilities                        2,500

Medical Supplies          50,000

Administrative Supplies 10,000

Profit                           82,500

TOTAL                           400,000                                   400,000

Profit = 82,500

Tax       -24,750

            $57,750

b. What number of visits is required for break-even? (Hint: At breakeven, there is zero taxable income and hence zero taxes).

Break even point = fixed cost/cont pu

                        = 257,500/34

                        = 7573.52

                        = 7574 visits

c. What number of visits is required to provide you with an after-tax profit of $100,000?

Profit before tax = (100,000/70) x 100

                        = 142,857

Number of visits required = fixed cost + profit before tax/cont pu

                                    = 257,500 + 142,857/34

                                    = 11,775 visits

Problem 3

Burleson Clinic has fixed costs of $2,000,000 and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 per each of its 20,000 members. Past experience indicates the population served will average two visits per year.

a. Construct the base case projected P&L statement on the contract.

Answer 1

A:

P&L Account
Expenses	Amount$	Income	Amount $
Wages and benefits	220,000	Revenue	400000
Rent	5,000
Depreciation	30,000
Utilities	2,500
Medical supplies	50,000
Administrative supplies	10,000
Profit Before Tax	82,500
TOTAL	400000	TOTAL	400000
Profit before tax	82500.00
Less: Tax @ 30%	24750
Profit after tax	57750.00

b: Break even point = Fixed costs/ Contribution per unit

= (220000+5000+30000+2500)/ ((400000-50000-10000)/10000)

= 257,500/34

= 7573.53

= 7574 visits

C: Profit before tax = (100,000/70) x 100 = 142857

BEP = (Fixed costs + Profit)/ Contribution per unit

= (257500+142857)/34

= 11775.21

= 11775 visits

Problem 3:

Revenue = 150*20000 = 3000000

Less:Fixed cost = 2000000

Variable cost = 15*20000*2=600000

Net Income = 400000

P&L Account
Expenses	Amount$	Income	Amount $
Variable costs	600000	Revenue	3000000
Fixed Costs	2,000,000
Profit	400,000
TOTAL	3,000,000	TOTAL	3,000,000

b: Break even point = Fixed costs/ Contribution per unit

=