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Business Finance Healthcare Finance: An Introduction to Accounting and Financial Management

a. To construct: Profit and Loss statement for the clinic at original and projected level of visits and recommendation on change. Introduction: Profit and Loss statement refers to that statement which contains the net period income or loss of an individual or a company. It also contains the expenses for the given period. Profit and Loss statement for the clinic is as follow: Profit And Loss S. No. Particular Amount1,000 Visits Amount 1,200 Visits Revenue (50/45 Per Visit) 50,000 54,000 Variable Cost (30 Per Visit) 30,000 36,000 1 Contribution 20,000 18,000 Fixed Costs 15,000 20,000 2 Profit Before Tax 5,000 (2,000) It is clear from above calculations that the profit earned by clinic falls by $7,000 when new proposal is adopted, therefore, it is advised not to change current policy. b. To find: Increased volume in visits to break-even in proposed proposal. Introduction: Break-even point is that value of variable, in this case, ‘visits’, at which the profit earned after tax is zero. Break-even Visits = Fixed Cost Contribution Per Visit = 20 , 000 ( 45 − 30 ) = 1 , 334 Visits Since visits can not be in fraction, they have been rounded up. Estimated volumes in proposed project are 1200. Therefore, number of visits would need to increase by 134 in order to break even.

a. To construct: Profit and Loss statement for the clinic at original and projected level of visits and recommendation on change. Introduction: Profit and Loss statement refers to that statement which contains the net period income or loss of an individual or a company. It also contains the expenses for the given period. Profit and Loss statement for the clinic is as follow: Profit And Loss S. No. Particular Amount1,000 Visits Amount 1,200 Visits Revenue (50/45 Per Visit) 50,000 54,000 Variable Cost (30 Per Visit) 30,000 36,000 1 Contribution 20,000 18,000 Fixed Costs 15,000 20,000 2 Profit Before Tax 5,000 (2,000) It is clear from above calculations that the profit earned by clinic falls by $7,000 when new proposal is adopted, therefore, it is advised not to change current policy. b. To find: Increased volume in visits to break-even in proposed proposal. Introduction: Break-even point is that value of variable, in this case, ‘visits’, at which the profit earned after tax is zero. Break-even Visits = Fixed Cost Contribution Per Visit = 20 , 000 ( 45 − 30 ) = 1 , 334 Visits Since visits can not be in fraction, they have been rounded up. Estimated volumes in proposed project are 1200. Therefore, number of visits would need to increase by 134 in order to break even.

Solution Summary: The author explains that the clinic's profit falls by 7,000 when new proposal is adopted, therefore, it is advised not to change current policy.

Healthcare Finance: An Introduction to Accounting and Financial Management

Healthcare Finance: An Introduction to Accounting and Financial Management

6th Edition

ISBN: 9781567937411

Author: Louis C. Gapenski, Kristin L. Reiter

Publisher: Health Administration Press

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Cost-Volume-Profit Analysis

Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost st…

Marginal Costing

Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs r…

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Healthcare Finance: An Introduction to Accounting and Financial Management

Ch. 5.1 - Prob. 1.1STQ Ch. 5.1 - Prob. 1.2STQ Ch. 5.1 - Prob. 1.3STQ Ch. 5.1 - Prob. 2.1STQ Ch. 5.1 - Prob. 2.2STQ Ch. 5.1 - Prob. 2.3STQ Ch. 5.1 - Prob. 2.4STQ Ch. 5 - Prob. 1.1STQ Ch. 5 - Prob. 1.2STQ Ch. 5 - Prob. 2.1STQ

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Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner; Author: Accounting Step by Step;https://www.youtube.com/watch?v=D0MOfse9OWk;License: Standard Youtube License