5.6 Review the walk-in clinic data presented in Problem 5.5. Construct projected

Question

5.6 Review the walk-in clinic data presented in Problem 5.5. Construct projected P&L statements at volume levels of 8,000, 9,000, 10,000, 11,000, and 12,000 visits.

            A. Assume that the base case forecast is 10,000 visits. What is the clinics degree of operating leverage (DOL) at this volume level? Confirm the net incomes at the other volume levels using the DOL combined with the percent changes in volume.

            B. Now assume that the base case volume is 9,000 visits. What is the DOL at this volume?

Explanation / Answer

Hence answere of part A. is DOL for 10000 visits = 4.1212 and DOl for 9000 visits = 3.9096

Units produced 10000 8000 9000 11000 12000 Revenues 400000 400000 400000 400000 400000 Less: Wages 220000 220000 220000 220000 220000 Rent 5000 5000 5000 5000 5000 Depreciation 30000 30000 30000 30000 30000 Utilities 2500 2500 2500 2500 2500 Medical Supplies 50000 40000 45000 55000 60000 Administrative supplies 10000 317500 8000 9000 11000 12000 Profit Before Tax 82500 94500 88500 76500 70500 Less: Tax (@30%) 24750 28350 26550 22950 21150 Profit After Tax 57750 66150 61950 53550 49350 Quantity/Unit Q 10000 8000 9000 11000 12000 Price/Revenue Per Unit P 40 50 44.44444 36.36364 33.33333 Variable cost/Unit VC 6 6 6 6 6 Fixed Cost FC 257500 257500 257500 257500 257500 DOL 4.121212 3.724868 3.909605 4.366013 4.652482 Working Notes: Degree of Operating Leverage (DOL) = Q(P-VC) / (Q(P-VC)-FC) Where: Q Quantity/Units P Price/Revenue Per Unit VC Variable cost FC Fixed cost Variable cost are supples costs, therefore per unit variable costs are: Medical supplies 5 per unit Administrative Supplies 1 per unit

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