Cost behavior and profit analysis - 275 Words

Cost behavior and profit analysis (Coursework Sample) Content: Cost behavior and profit analysisProblem 5.4Projected PL StatementTotal revenue ($1,000* 15,000) 15,000,000Less Total variable costs ($200* 15,000) 3,000,000 Total contribution margin 12,000,000Less total fixed costs 10,000,000 Profit 2,000,000Breakeven pointNote- at breakeven point total revenues equal total costs (Cafferky and Wentworth, 2010), thus:(Charge per patient* number of patients) = (total variable costs + fixed costs)($1,000*p) = ($200*p + $10,000,000)1,000p = 200p + 10,000,0001000p 200p = 10,000,000800p = 10,000,000P = 10,000,000/800 = 12,500. The hospital will have to treat 12,500 patients to breakeven.To hit profit targets of $1,000,00 and $500,000, we add the profit target to the total costs, thus:$1,000*p = $200*p + $10,000,000 +$1,000,0001,000p = 200p + 11,000,000800p = 11,000,000P= 11,000,000/800 = 13,750. The hospital will have to treat 13750 patients to make a profit of $1,000,000.$1,000*p = $200*p + $10,000,00 0 + $500,0001,000p = 200p + 10,500,000800p = 10,500,000P= 10,500,000/800 = 13,125. The hospital will have to treat 13,125 patients to make a profit of $500,000.A discount proposal of 25% to 20% of the patientsThis proposal will result in 25/100* 20/100 (0.05) reduction of the initially projected income.Income to be realized = (1-0.05)* 15,000,000 = 14,250,000Less total variable costs 3,000,000 11,250,000Less fixed costs 10,000,000 Profit 1,250,000The hospital should accept the proposal because despite resulting in reduced revenues, it still makes profit, thus, it is a sustainable proposal.Problem 5.5Projected PL StatementTotal revenue 400,000Less variable cost: Medical supplies 50,000 Administrative supplies 10,000 60,000 340,000Less fixed cost: Wages and benefits 220,000 Depreciation 30,000 Rent 5,000 Utilities 2,500 257,500 Profit before tax 82,50030% tax 33,750 Profit after tax 48,750Breakeven visitsRevenue per visit = 400,000/10,000 = $40Variable cost per visit = 60,000/10,000 = $6...