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 & 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 & 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

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