Question

$25 ☺ ☺ 183 (202 of 745) A my © © 150% un mong uulu munavu vy quvuon R. -3 Assume that a radiologist group practice has the following co structure: Fixed costs $500,000 Variable cost per procedure Charge (revenue) per procedure $100 Furthermore, assume that the group expects to perform 7,500 procedur in the coming year. a. Construct the group's base case projected P & L statement. b. What is the group's contribution margin? What is its breakeven poin c. What volume is required to provide a pretax profit of $100,00 A pretax profit of $200,000? d. Sketch out a CVP analysis graph depicting the base case situation e. Now assume that the practice contracts with one HMO, and t plan proposes a 20 percent discount from charges. Redo questic a, b, c, and d under these conditions.

Answer 1

a.

P & L Statement
Sales	$ 750,000
Variable costs	187,500
Contribution Margin	562,500
Fixed Costs	500,000
Net Income	62,500

b. Contribution margin per unit = $ 562,500 /7,500 procedures = $ 75 per procedure.

Break-even point =Fixed Costs / Contribution Margin per Procedure = $ 500,000 / $ 75 = 6,666.67 procedures

c. For a pretax profit of $ 100,000, number of procedures required to be performed = $ ( 500,000 + 100,000 ) / 75 = 8,000 procedures

e. New contribution margin per procedure = $ ( 80 - 25 ) = $ 55

Break-even point = $ 500,000 / $ 55 = 9,090.91 procedures.

For a pretax profit of $ 100,000, volume required = $ 600,000 / $ 55 = 10,909 procedures.

For a pretax profit of $ 200,000, volume required = $ 700,000 / $ 55 = 12,727.27 procedures.

For a pretax profit of $ 200,000, number of procedures required to be performed = $ ( 500,000 + 200,000 ) / 75 = 9,333.33 procedures