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Business Finance EBK HEALTHCARE FINANCE: AN INTRODUCTION

a To prepare: The profit and loss statement for the given contract. Introduction: The profit & loss statement is prepared at the end of the year to calculate the net profit or net loss for the year. It is prepared by deducting variable cost and fixed cost from the sales revenue. The profit & loss statement is prepared as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 2) (600,000) Contribution margin 2,400,000 Less: Fixed cost 2,000,000 Net profit 400,000 b To construct: The CVP analysis graph for the number of members for the data given. Introduction: The CVP analysis shows the relationship between the cost, volume, and profit of the product. It shows how a change in volume will change the cost and profit of the product. The CVP analysis graph for the number of members is prepared as follows: In the above graph, orange line is the revenue line which is starting from 0. The grey line is the fixed cost line which is constant at any number of members. Yellow line is the variable cost line which starts from $0, shows that there is $0 cost for 0 number of members. The blue line is the total cost line which is sum of the fixed cost and the variable cost. The total cost line starts from $2 million. c To calculate: The contribution margin on the contract. Introduction: The contribution is calculated by deducting the variable costs from the total sales revenues of the product. The contribution margin is calculated as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 2) (600,000) Contribution margin 2,400,000 d To calculate: The profit or loss if the visit of members is reduced to 1.8 per member. Introduction: The profit & loss statement is prepared at the end of the year to calculate the net profit or net loss for the year. It is prepared by deducting variable cost and fixed cost from the sales revenue. The net profit or loss is calculated as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 1.8) (540,000) Contribution margin 2,460,000 Less: Fixed cost 2,000,000 Net profit 460,000

a To prepare: The profit and loss statement for the given contract. Introduction: The profit & loss statement is prepared at the end of the year to calculate the net profit or net loss for the year. It is prepared by deducting variable cost and fixed cost from the sales revenue. The profit & loss statement is prepared as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 2) (600,000) Contribution margin 2,400,000 Less: Fixed cost 2,000,000 Net profit 400,000 b To construct: The CVP analysis graph for the number of members for the data given. Introduction: The CVP analysis shows the relationship between the cost, volume, and profit of the product. It shows how a change in volume will change the cost and profit of the product. The CVP analysis graph for the number of members is prepared as follows: In the above graph, orange line is the revenue line which is starting from 0. The grey line is the fixed cost line which is constant at any number of members. Yellow line is the variable cost line which starts from $0, shows that there is $0 cost for 0 number of members. The blue line is the total cost line which is sum of the fixed cost and the variable cost. The total cost line starts from $2 million. c To calculate: The contribution margin on the contract. Introduction: The contribution is calculated by deducting the variable costs from the total sales revenues of the product. The contribution margin is calculated as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 2) (600,000) Contribution margin 2,400,000 d To calculate: The profit or loss if the visit of members is reduced to 1.8 per member. Introduction: The profit & loss statement is prepared at the end of the year to calculate the net profit or net loss for the year. It is prepared by deducting variable cost and fixed cost from the sales revenue. The net profit or loss is calculated as follows: Particular Amount ($) Sales ($150 × 20,000) 3,000,000 Less: variable cost (20,000 × $15 × 1.8) (540,000) Contribution margin 2,460,000 Less: Fixed cost 2,000,000 Net profit 460,000

Solution Summary: The author explains how the profit & loss statement is prepared at the end of the year to calculate the net profit or net loss.

EBK HEALTHCARE FINANCE: AN INTRODUCTION

EBK HEALTHCARE FINANCE: AN INTRODUCTION

6th Edition

ISBN: 9781567937428

Author: Gapenski

Publisher: YUZU

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EBK HEALTHCARE FINANCE: AN INTRODUCTION

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