Fill in the missing data indicated by question marks 5.3 Assume that a radiologi

Question

Fill in the missing data indicated by question marks 5.3 Assume that a radiologist group practice has the following cost structure: Fixed costs Variable cost per procedure Charge (revenue) per procedure $500,000 25 100 Furthermore, assume that the group expects to perform 7,500 proce- dures 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 its 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.

Explanation / Answer

5.3 Radiologist Group

a. Projected Group Statement

Particulars   $

Charge Per Procedure 100

Less: Variable Expenses 25

Contribution per procedure 75

(X) No. Of procedure 7500

Contribution $ $ 562500

Less: Fixed Cost $ 500000

Profit $ 62500

b. Contribution Margin = $ 75.00 (as above)

  PV ratio= Contribution per procedure/ Revenue per procedure

= $ 75 / $ 100

= 0.75 or 75%

Break Even point Sale in $ = Fixed Cost / PFV ratio

= $ 500000 / 75%

= $ 666666.66

Break even point sale procedure= Break even point sale / Revenue per procedure

= $ 666666.66/ 100

= 6666.66 or 6667 procedure

C. Pretax profit of $ 100000

Required sale = (Fixed cost + Pretax profit )/ PV ratio

= ($ 500000 + $ 100000) / 75%

= $ 800000

Required sale in procedure = Required sale / Revenue per procedure

= $ 800000 / $ 100

= 8000 Procedure

Pretax profit of $ 200000

Required sale = (Fixed cost + Pretax profit )/ PV ratio

= ($ 500000 + $ 200000) / 75%

= $ 933333.33

Required sale in procedure = Required sale / Revenue per procedure

= $ 933333.33 / $ 100

= 9333.33 or 9334 Procedure

e.20 % discount in charges

a. Projected Group Statement

Particulars   $

Charge Per Procedure (100-20) 80

Less: Variable Expenses   25

Contribution per procedure 55

(X) No. Of procedure   7500

Contribution $ $ 412500

Less: Fixed Cost $ 500000

Loss $ - 87500

b. Contribution Margin = $ 55.00 (as above)

  PV ratio= Contribution per procedure/ Revenue per procedure

= $ 55 / $ 80

= 0.6875 or 68.75%

Break Even point Sale in $ = Fixed Cost / PFV ratio

= $ 500000 / 68.75%

= $ 727272.72

Break even point sale procedure= Break even point sale / Revenue per procedure

= $ 727272.72/ 80

= 9090.90 or 9091 procedure

C. Pretax profit of $ 100000

Required sale = (Fixed cost + Pretax profit )/ PV ratio

= ($ 500000 + $ 100000) / 68.75%

= $ 872727.27

Required sale in procedure = Required sale / Revenue per procedure

= $ 872727.27 / $ 80

= 10909.09 or 10910 Procedure

Pretax profit of $ 200000

Required sale = (Fixed cost + Pretax profit )/ PV ratio

= ($ 500000 + $ 200000) / 68.75%

= $ 1018181.81

Required sale in procedure = Required sale / Revenue per procedure

= $ 1018181.81 / $ 80

= 12727.27 or 12728 Procedure

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