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# Accounting:Cost-volume-profit analysis.

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Assume the following:

Sales of 5000 units per month
Price of \$12.50 per unit
Revenue of \$62,500
Variable Cost of \$6.00 per unit
Fixed Costs of \$15,000

In all parts, show your formulas and work.

Part A: Explain what happens with a 5% price increase to revenue, variable costs, contribution to margin, fixed costs and the wholesale price assuming sales stay constant. State your answer in \$.
Part B: What is the breakeven sales change in units and dollars with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.
Part C: What is the breakeven sales change, in units, for an increase in variable costs equal to \$.22 with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.
Part D: What is the breakeven sales change, in units, for a fixed cost increase of \$1,000 each month with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.

#### Solution Summary

The problem set deal with issues in accounting: cost-volume-profit analysis.

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## Healthcare finance, cost-volume-profit, management accounting

Consider the CVP graphs below for two providers operating in a fee-for-service environment: see attached file

a. Assuming the graphs are drawn to the same scale, which provider has the greater
fixed costs? The greater variable cost rate? The greater per unit revenue?
b.Which provider has the greater contribution margin?
c.Which provider needs the higher volume to break even?
d. How would the graphs change if the providers were operating in a discounted fee-for-
service environment? In a capitalized environment?

Consider the data in the following table for three independent healthcare organizations: (see file)

Total Fixed Total
Revenues Variable Costs Costs Costs Profit
a. \$2,000 \$1,400 ? \$2,000 ?
b. ? 1,000 ? 1,600 \$2,400
c. 4,000 ? \$600 ? 400
Fill in the missing data indicated by question marks.
5.6 Assume that a radiology group practice has the following cost structure:
Fixed costs \$500,000
Variable cost per procedure 25
Charge (revenue) per procedure 100
Furthermore, assume that the group expects to perform7,500 procedures in the coming
year.
a. Construct the group's base case projected P&L statement.
b.What is the group's contribution margin?What is its break-even point?
c. What volume is required to provide a pretax profit of \$100,000? A pretax profit of
\$200,000?
d. Sketch out a CVP analysis graph depicting the base case situation.
e. Now, assume that the practice contracts with one HMO, and the plan proposes a 20
percent discount from charges. Redo questions a, b, c, and d under these conditions.

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