You are considering a walk-in podiatry clinic. Your financial projections for th

Question

You are considering a walk-in podiatry 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 2,040 Medical Supplies 50,000 Administrative Supplies 10,000 Assume that all costs are fixed except for supply costs, which are variable. Required; a. Construct the clinic’s pro-forma income statement. b. What number of visits is required to break-even. c. What number of visits is required to provide a profit of $100,000?

Explanation / Answer

Income statement

Revenues

400000

Less:

Cost of goods sold(Medical and administrative supplies)

60000

Gross income

340000

Less:

Depreciation

30000

Selling and administrative expenses

227040

Wages and benefits

220000

Rent

5000

Utilities

2040

Net income

82960

Breakeven point=Fixed cost/Contribution margin per unit

Fixed cost=All costs except supplies=220000+5000+30000+2040=257040

Contribution margin=Sales-Variable cost

Sales=400000

Variable cost=60000

Contribution =400000-60000=340000

Contribution margin per unit=Total contribution/Number of visits=340000/10000=$34 per visit

Break even point=Fixed cost/Contribution margin per unit

Break even point=257040/34=7560 visits

After 7560 visits, there will be a breakeven point which means all costs have been fully covered and there will be profits after breakeven point.

Number of visits required to provide a profit of $10,000

Sales=Variable cost +Fixed cost +Profit

40 *n=6 *n+257040+100000

N=10501 visits

Number of visits required to attain profit of 100000=10501 visits(approximately)

Income statement

Revenues

400000

Less:

Cost of goods sold(Medical and administrative supplies)

60000

Gross income

340000

Less:

Depreciation

30000

Selling and administrative expenses

227040

Wages and benefits

220000

Rent

5000

Utilities

2040

Net income

82960

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