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Healthcare Finance
Question
Healthcare Finance
Solved by qualified expert

Problem 5.3

a)      The project P&L statement is shown below.

 Particulars Amount Number of procedures 7,500 Expected revenue 750,000 (-)Cost of sales 187,500 Gross profit 562,500 (-)Fixed costs 500,000 Profit before tax (\$) 62,500

b)      Revenue per procedure = \$ 100

Variable cost per procedure = \$ 25

Hence contribution margin per procedure = 100-25 = \$ 75

Total contribution margin for the group = 7500*75 = \$562,500

Fixed cost = \$500,000

Let the break even volume of procedures be X

Thus Fixed costs = Contribution margin *X

Hence 500000 = 75*X

Solving the above, we get X =6,667

c)       Pretax profit desired = \$ 100,000

Profit = Revenue – Fixed cost – Variable cost

Let the volume of procedures required for this profit level be X

Then 100000 = 75*X – 500000

Solving the above we, get X= 8000 units

Now Pretax profit desired = \$ 200,000

Profit = Revenue – Fixed cost – Variable cost

Let the volume of procedures required for this profit level be Y

Then 200000 = 75*Y – 500000

Solving the above we, get Y= 9,334 units