Triangle Pediatrics currently provides 1,000 visits per year at a price of $50 p

Question

Triangle Pediatrics currently provides 1,000 visits per year at a price of $50 per visit. The variable cost per visit (variable cost rate) is $30, and total fixed costs are $15,000. The business manager suggests that Triangle Pediatrics can increase the number of visits to 1,200 per year by cutting the price per visit by $5 and increasing the fixed advertising budget by $5,000.

a. Construct the base case projected P&L statement and the projected P&L statement incorporating the proposed changes. Should Triangle Pediatrics make the suggested changes?

b. How much would visit volume need to increase in order for Triangle Pediatrics to break even with the proposed changes?

Explanation / Answer

a) P&L statement ( 1000 visits)

DR. CR.

PROJECTED P & L STATEMENT (1200 UNITS)

DR. CR.

There will be net loss $ 2000 in proposed change. Hence, proposed change cannnot be accepted.

b)

BREAK-EVEN POINT

(Fixed Cost/Contribution per unit)

Therefore, no of visits to be increase in order for Triangle Pediatrics to break even with the proposed changes (1334 - 1200) = 134 visits.

PARTICULARS Amount ($) PARTICULARS Amount ($) To Variable Cost (1000X30) 30000 By Receipt from visitors (1000X50) 50000 To Fixed Cost 15000 To Net Profit 5000 TOTAL 50000 TOTAL 50000

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