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Literature & Language
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Cost behavior and profit analysis (Coursework Sample)

Instructions:

The paper was about solving two accounting problems presented by the client. the problems concerned breakeven analyses.

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Content:
Cost behavior and profit analysis
Problem 5.4
Projected P&L Statement
Total revenue ($1,000* 15,000) 15,000,000
Less Total variable costs ($200* 15,000) 3,000,000
Total contribution margin 12,000,000
Less total fixed costs 10,000,000
Profit 2,000,000
Breakeven point
Note- at breakeven point total revenues equal total costs (Cafferky and Wentworth, 2010), thus:
(Charge per patient* number of patients) = (total variable costs + fixed costs)
($1,000*p) = ($200*p + $10,000,000)
1,000p = 200p + 10,000,000
1000p – 200p = 10,000,000
800p = 10,000,000
P = 10,000,000/800 = 12,500. The hospital will have to treat 12,500 patients to breakeven.
To hit profit targets of $1,000,00 and $500,000, we add the profit target to the total costs, thus:
$1,000*p = $200*p + $10,000,000 +$1,000,000
1,000p = 200p + 11,000,000
800p = 11,000,000
P= 11,000,000/800 = 13,750. The hospital will have to treat 13750 patients to make a profit of $1,000,000.
$1,000*p = $200*p + $10,000,000 + $500,000
1,000p = 200p + 10,500,000
800p = 10,500,000
P= 10,500,000/800 = 13,125. The hospital will have to treat 13,125 patients to make a profit of $500,000.
A discount proposal of 25% to 20% of the patients
This proposal will result in 25/100* 20/100 (0.05) reduction of the initially projected income.
Income to be realized = (1-0.05)* 15,000,000 = 14,250,000
Less total variable costs 3,000,000
11,250,000
Less fixed costs 10,000,000
Profit 1,250,000
The hospital should accept the proposal because despite resulting in reduced revenues, it still makes profit, thus, it is a sustainable proposal.
Problem 5.5
Projected P&L Statement
Total revenue 400,000
Less variable cost:
Medical supplies 50,000
Administrative supplies 10,000 60,000
340,000
Less fixed cost:
Wages and benefits 220,000
Depreciation 30,000
Rent 5,000
Utilities 2,500 257,500
Profit before tax 82,500
30% tax 33,750
Profit after tax 48,750
Breakeven visits
Revenue per visit = 400,000/10,000 = $40
Variable cost per visit = 60,000/10,000 = $6
...
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