Question

$600 C. 4,000 400 Fill in the missing data indicated by question marks. Assume that a radiology group practice has the following cost structure: 5.6 $500,000 Fixed costs 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. Construct the group's base case projected P&L statement. b. What is the group's contribution margin? What is its breakeven point (in num- ber of procedures)? What volume is required to provide a pretax profit of $100,000? A pretax profit a. I С. of $200,000? Sketch out a CVP analysis graph depicting the base case situation. Now, assume that the practice contracts with one HMO for all 7,500 procedures and the plan proposes a 20 percent discount from charges. Answer questions a, b, c, and d again under these conditions. d. е. 5-7 General Hospital, a not-for-profit acute care facility, has the following cost structure

Answer 1

Answering the first 4 sub parts of the first question as per policy

Answer for Question 5.6

Answer (a)

Data given,

• Fixed Cost = $500,000
• Variable Cost per procedure = $25
• Revenue per procedure = $100
• No of procedures = 7500

Total Revenue = 7500 * 100 = $750,000

Total Variable Cost = 7500 * 25 = $187,500

Total Expenses = Fixed Cost + Variable Cost = 500,000 + 187,500 = $687,500

Profit = Total Revenue – Total Expenses = 750,000 -687,500 = $62,500

P&L Statement

Income Revenue from sales Net Revenue $ $ 750,000 750,000 Expenses Fixed Cost Variable Cost Total Cost $ $ $ 500,000 187,500 687,500 Gross Profit $ 62,500

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Answer (b)

Contribution Margin per unit = Sales price per procedure – Variable cost per procedure
                                                = 100 – 25
                                                = $75 per unit

Total Contribution Margin = Total Sales – Total Variable cost
                                                = 750000 – 187,500
                                                = $562,500

Breakeven point = Fixed Cost / Contribution Margin per unit
                            = 500,000 / 75
                           = 6667 units

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Answer (c)

Profit = Revenue – (Fixed Cost + Variable Cost)
Profit = (Quantity * Selling price) - Fixed Cost – (Quantity * Variable Cost)
Profit = Quantity * (Selling Price – Variable Cost) – Fixed Cost

So, Quantity = (Profit + Fixed Cost) / (Selling Price – Variable Cost)

For Pretax Profit of $100,000, Quantity = (100,000 + 500,000) / (100 - 25) = 600,000 / 75 = 8000 procedures

For Pretax Profit of $200,000, Quantity = (200,000 + 500,000) / (100 - 25) = 700,000 / 75 = 9333 procedures

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Answer (d)

Please find below sketch of CVP analysis of the base situation:

Break-even point indicated. is Profit & Loss margins have been highlighted separately.

Total Revenue 7 Total Cost annon Profit - & T. Variable Cost $66667 Breakeven point fixed Cost $500,000 6667 Procedures sold