# Fixed Costs Semi-Fixed Cost Case Study

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Q5.1) Explain the differences between fixed costs, semi-fixed costs, and variable costs. -Fixed costs: Known costs not affected by volume (within the relevant range). -Semi-fixed costs: Are fixed within a range of volume that is smaller than the relevant range. -Variable costs: Directly affected by volume. Q5.3) a. What is the cost-volume-profit (CVP) analysis? b. Why is it so useful to health services managers? -a. CVP is an analysis that assess the effects of volume changes on costs. -b. Allows managers to evaluate future courses of action regarding pricing and the introduction of new services by examining the effects of alternative assumptions regarding costs, volume, and prices. Q5.7) What elements of profit analysis change when…show more content…
a. Construct the group’s base case projected P&amp;L statement. b. What is the group’s contribution margin? What is the 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 percent discount from charges. Redo questions a, b, c, and d under these conditions. a. Total revenue | (100x7500) | | \$750,000 | Total Var Cost | (25x7500) | | 187,500 | Total contribution margin | | \$562,500 | Fixed Costs | | | 500,000 | Profit | | | \$62,500 | b. Contribution margin: \$75; breakeven point: Contribution margin x Volume=FC \$75 x Volume = \$500,000 Volume = 6,667 c. (\$75 x Volume)-\$500,000 = \$100,000 \$75 x Volume = \$600,000 Volume = 8,000 (\$75 x Volume)-\$500,000 = \$200,000 \$75 x Volume = \$700,000 Volume = 9,333 d. | | | | | | | | | | | | e. Total revenue | (80x7500) | | \$600,000 | Total Var Cost | (25x7500) | | 187,500 | Total contribution margin | | \$412,500 | Fixed Costs | | | 500,000