please help Laurie Vaden is a nurse practitioner with her own practice. She has
ID: 2663142 • Letter: P
Question
please helpLaurie Vaden is a nurse practitioner with her own practice. She has developed contracts with several large employers to perform routine physical, fitness for duty exams, and initial screening of on-the-job injuries. She currently sees 150 per month, charging 450 per visit. Her total costs are $7,500, of which $1,500 is for supplies. She has decided that she needs to increase profit, so she is considering raising her fee to $65. She expects to lose 10 percent of her business to competitors that charge an average of 460 per visit. Determine her current and predicted: 1) revenues, 2) variable costs, and 3) total contribution margin. What do you recommend she do? Why?
Explanation / Answer
Pl note : The question figures seems to be incorrect. Initial Fee is $450 per visit but is being increased to $65. This means that either earlier fee was $45 & not $450 or new Fee is $650 as competitors are charging $460. So I am assuming that old fee is $450 & New Fee is $650. Pl PM me if you feel I should use different figures. Total Revenue from Fees = No of visits * Charges per visit = 150*450=$67,500......(Ans 1) Total Cost is 7500. Cost of supplies is $1500. Supplies cost is a var cost and is linked to no of visits. SO Var cost of supply per visit = Total supply cost/no of visits = 1500/150 = $10 per visit. So Var cost per visit is $10.........(Ans 2) Remaining 7500-1500 = 6000 is her Fixed costs. Cont margin pu = Vist fee pu - Va cost pu = 450 - 10 = $440 per visit .....(Ans 3) So her Profit stt looks like below :- Revenue from Fees : $67500 Less Var costs : $1500 ------------------------------------ Total Contn $66000 Less Fixed cost $6000 ----------------------------------- Gross Profit $60,000 ----------------------------------- Scenario 2: New Fee is $650 No of visit reduce by 10%, So Now the No of visits = 150 - 10%*150 = 135 SO Revenue = 650*135 = $87,750.........(Ans1) Var cost = 1500 No of visit = 135 So Var cost per visit = 1500/135 = 11.11.......(Ans 2) Remaining 7500-1500 = 6000 is her Fixed costs. Cont margin pu = Vist fee pu - Va cost pu = 650 - 11.11= $638.89 per visit .....(Ans 3) So her Profit stt looks like below :- Revenue from Fees : $87,750 Less Var costs : $1500 ------------------------------------ Total Contn $86,250 Less Fixed cost $6000 ----------------------------------- Gross Profit $80,250 -----------------------------------
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