Assume that a radiologist group practice has the following cost structure: Fixed
ID: 2538132 • Letter: A
Question
Assume that a radiologist group practice has the following cost structure:
Fixed Costs
$500,000
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.
a. Construct the group's base case projected P&L statement
Total revenues
$ 750,000
Total variable costs
$ (187,500)
Total contribution margin
$ 562,500
Fixed costs
$ (500,000)
Profit (net income)
$ 625,000
b. What is the group's contribution margin? What is its breakeven point?
Revenue per procedure
$ 100
Variable cost per procedure
$ 25
Contribution margin per procedure
$ 562,500
Fixed costs
Contribution margin per procedure
Accounting Breakeven
visits
c.1 What volume is required to provide a pretax profit of $100,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
c.2 What volume is required to provide a pretax profit of $200,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
d. We are skipping
e. now assume a 20 percent discount from charges. Redo questions a, b, and c under these conditions.
redo a. Construct the group's base case projected P&L statement
Total revenues
Total variable costs
Total contribution margin
Fixed costs
Profit (net income)
redo b. What is the group's contribution margin? What is its breakeven point?
Revenue per procedure
Variable cost per procedure
Contribution margin per procedure
Fixed costs
Contribution margin per procedure
Accounting Breakeven
visits
redo c.1 What volume is required to provide a pretax profit of $100,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
redo c.2 What volume is required to provide a pretax profit of $200,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
Assume that a radiologist group practice has the following cost structure:
Fixed Costs
$500,000
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.
a. Construct the group's base case projected P&L statement
Total revenues
$ 750,000
Total variable costs
$ (187,500)
Total contribution margin
$ 562,500
Fixed costs
$ (500,000)
Profit (net income)
$ 625,000
b. What is the group's contribution margin? What is its breakeven point?
Revenue per procedure
$ 100
Variable cost per procedure
$ 25
Contribution margin per procedure
$ 562,500
Fixed costs
Contribution margin per procedure
Accounting Breakeven
visits
c.1 What volume is required to provide a pretax profit of $100,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
c.2 What volume is required to provide a pretax profit of $200,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
d. We are skipping
e. now assume a 20 percent discount from charges. Redo questions a, b, and c under these conditions.
redo a. Construct the group's base case projected P&L statement
Total revenues
Total variable costs
Total contribution margin
Fixed costs
Profit (net income)
redo b. What is the group's contribution margin? What is its breakeven point?
Revenue per procedure
Variable cost per procedure
Contribution margin per procedure
Fixed costs
Contribution margin per procedure
Accounting Breakeven
visits
redo c.1 What volume is required to provide a pretax profit of $100,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
redo c.2 What volume is required to provide a pretax profit of $200,000?
Fixed costs
Target profit
Contribution margin per procedure
Economic Breakeven
visits
Explanation / Answer
Answer
A.
Sales = Fixed cost + Variable cost + Profit
Gross profit = Sales - Variable cost - Fixed cost
Gross profit = $750,000(7500 *100) -$187,500 -- $500,000
Gross profit = $62500
B.
Contribution margin = Sales - Variable cost
Contribution margin =$750,000 - $187,500
Contribution margin =$562,500
Break even point =Fixed cost/P.V ratio
Break even point ==$500,000/75 =$6667
P/V ratio =Contribution/Sales*100
=$562,500/$750,000*100
=75
C.
(Fixed Costs + Specified Profit) / Contribution Margin per unit
If the Specified profit is $100,000 then sales volume is =(500000 + 100000)/75
600000/75= 8,000
If the Specified profit is $100,000 then sales volume is =(500000 + 200000)/75
700000/75= 9,333
E.
Now 20% discount charges, then Each procede would cost is $80
Variable cost is =$187,500
Sales =$600,000
Fixed cost =$500,000
Sales - Variable cost = Gross profit
600,000 - 187,500 = Gross profit
Gross profit =$412,500
Net Profit = Gross profit - Fixed cost
= $412,500 -$500,000
Net loss =(-)$87500
Contribution = Sales -Variable cost
=$412,500
Break even point =Fixed cost/P.V ratio
P/V ratio =Contribution/Sales*100
=412,500/600,000
=69
Break even point = $500,000/69
=7246
Sales = (Fixed cost + Desired Profit)/P.V Ratio
Sales volume if the desired profit is $100,000
Sales = (500,000 +100,000)/69
=600,000/69
=8696
Sales volume, if the desired profit is $200,000
Sales =(500,000 + 200,000)/69
=700,000/69
=10145
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