Problem 1 Assume that a radiologist group practice has the following cost structure: Fixed costs $500,000... Question: Problem 1 Assume that a radiologist group practice has the following cost structure:  Fixed costs$500,000 Variable cost per procedure $25 Charge (price) per procedure$100

Furthermore, assume that the group expects to perform 7,500 procedures in the coming year.

Part A

a. Construct the group’s base case projected P&L statement. (See exhibit 5-5).

P & L Statement

Revenue                      750,000 (100 x 7500)

Variable Costs               -187,500 (25 x 2500)

Contribution                562,500

Fixed Costs                   -500,000

Net income/profit        62,500

b. What is the group’s contribution margin?

Contribution margin = 100 – 25 = 75 per product and 562,500 in total for 7500 products

c. What is the group’s breakeven point in volume?

Breakeven point is 500,000/75 = 6,666.67 = 6,667

d. What volume is required to provide a pretax profit of $100,000? Part B a. Complete the following table  Volume Revenue Fixed Costs Variable Costs Total Costs Average Cost 0 500 1,000 1,500 2,000 2,500 3,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 b. Describe the relationship between volume and average cost in this particular cost structure. Please explain. c. Sketch out a CVP analysis graph depicting the base case situation. (Hint: use Excel to produce the sketch. When done, copy/paste the sketch below). Problem 2 You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows”  Revenues (10,000 visits)$400,000 Wages and benefits 220,000 Rent 5,000 Depreciation 30,000 Utilities 2,500 Medical supplies 50,000 Administrative supplies 10,000

Assume that all costs are fixed, except medical supplies and administrative supplies, which are variable. Furthermore, assume that the clinic must pay taxes at 30 percent rate.

a. Construct the clinic’s projected P&L statement.

EXPENSES                     AMOUNT          INCOME            AMOUNT

Wages and benefits      220,000           revenue           400,000

Rent                             5,000

Depreciation                30,000

Utilities                        2,500

Medical Supplies          50,000

Profit                           82,500

TOTAL                           400,000                                   400,000

Profit = 82,500

Tax       -24,750

$57,750 b. What number of visits is required for break-even? (Hint: At breakeven, there is zero taxable income and hence zero taxes). Break even point = fixed cost/cont pu = 257,500/34 = 7573.52 = 7574 visits c. What number of visits is required to provide you with an after-tax profit of$100,000?

Profit before tax = (100,000/70) x 100

= 142,857

Number of visits required = fixed cost + profit before tax/cont pu

= 257,500 + 142,857/34

= 11,775 visits

Problem 3

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