# Finance P & L

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5.3] Assume that a Radiologist group practice has the following cost structure - Fixed Costs \$500,000; Variable Cost per procedure \$25 and Charge per procedure \$100. Furthermore, assume that the group expects to perform \$7500 procedures in the coming year. a) Construct the group's base case projected P &amp; L statement. b) What is the group's contribution margin? What is it's breakeven point? c) what volume is required to provide a pretax profit of \$100,000? A pretax profit of \$200,000? d) Sketch out a CVP analysis graph depicting the base case situation? e) Now assume that the practice contracts with one HMO, and the plan proposes a 20% discount from charges. Redo questions a, b, c, and d under these conditions. a) Construct the group's base case projected P &amp; L statement. | Number of procedures | Rate per procedure | Amount | Revenue | 7500 | \$100 | \$750,000 | Variable cost | 7500 | \$25 | \$187,500 | Contribution Margin | \$562,500 | Less: Fixed Cost | | | \$500,000 | Net Income | | | \$62,500 | b) What is the group's contribution margin? What is it's breakeven point? Contribution Margin = Sale price – Variable cost = \$100 - \$25 = \$75 Breakeven Point = Fixed Cost ÷ Contribution per unit = \$500,000 ÷ \$75 = 6,667 procedures c) what volume is required to provide a pretax profit of \$100,000? A pretax profit of \$200,000? Volume required to provide a pretax profit \$100,000 = (Fixed cost + Desired profit) ÷ Contribution margin = (500,000 + 100,000) ÷ 75 = 8,000 Volume required to provide a pretax profit \$200,000 = (Fixed cost + Desired profit) ÷ Contribution margin = (500,000 + 200,000) ÷ 75 = 9,334 d) Sketch out a CVP analysis graph depicting the base case situation? ------------------------------------------------- Revise