Question

P&L Statement for Outpatient Therapy Business Relevant Volume Range = 10,000 - 15,000 visits Total Current Volumes 12,000 Total Annual Revenues 960,000 Fixed Costs Variable Costs Total Costs 600,000 300,000 900,000 Profit 60,000 Answer the following questions: 1) What is the revenue, fixed, variable and total costs per unit at the current volume? 2) What is the profit if volume is maxed out? 3) If increasing the relevant range to 20,000 vists would cost $150,000 in fixed costs, how much volume would be needed to earn profit at the current maximum volume? 4) What is the new fixed, variable and total costs per unit at these new volumes?

Answer 1

1)

		Per unit
Annual revenues	960,000	80
Fixed costs	600,000	50
Variable costs	300,000	25
Total costs	900,000	75
Profit	60,000	5

2)

		Per unit
Annual revenues	1,200,000	80
Fixed costs	600,000	40
Variable costs	375,000	25
Total costs	975,000	65
Profit	225,000	15

3)

Profit at current maximum volume

225,000

Target Volume

= (Target profit + Fixed costs) / (Sales price - Variable cost per unit)

= (225,000 + 600,000 + 150,000) / (80 - 25)

= (975,000) / (55)

= 17,727.2727

17,727 units

4) Per unit cost at:

	12,000 units	15,000 unuts	17,727 units	20,000 units
Fixed costs	62.5	50	42.3	37.5
Variable costs	25	25	25	25
Total costs	87.5	75	67.3	62.5