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Healthcare Finance
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Healthcare Finance
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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

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