Cost Behaviour and Profit Analysis Student`s

COST BEHAVIOUR AND PROFIT ANALYSIS 1

CostBehaviour and Profit Analysis

Question 5.4

General Hospital

  1. The projected P$L account

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A statement projected profit and loss

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$

Sales (Revenue)

15,000 visits

15,000,000

Variable Cost

3,000,000

Contribution

12,000,000

Administrative expenses (FC)

10,000,000

Surplus

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2,000,000

  1. Let the Q* be the number of inpatients at breakeven. At BEP, the firm makes no profit. That is, TR=TC

Q*=FC/(P-VC)

10000000/(1000-200) = 12500 units

Thereforethe hospital needs to have 12,500 visits for them to breakeven

  1. Profit, P = Revenue – (FC + VC)

Letthe total visits per day be Q

$1,000,000= {($1,000 × Q) – ($10,000,000 + 200Q)}

11000000=800Q

  • Q= 13750

Thefirm will need to have 13750 inpatients for them to make a profit of1,000,000

$500,000= {($1,000 × Q) – ($10,000,000 + 200Q)}

10500000=800Q

  • Q= 13125 inpatients

Thefirm will need to have 13125 inpatients for them to make a profit of500,000

Question5.5

a)

Clinic`s projected profit and loss statement

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$

Revenues

10000 visits

400,000

Medical supplies

50,000

Administrative supplies

10,000

Contribution

340,000

Wages and benefits

220,000

Rent

5,000

Depreciation

30,000

Utilities

2,500

Earning before Tax

82,500

Tax @30%

24,750

Earnings After Tax

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57,750

b)Break-even analysis

AtBEP, Profit p, = 0 this implies that, total cost TC= total revenue TR

Q*=FC/ (P-VC)

257500/(43-36) = 7574 visits

Therefore,the new clinic needs to have 7574 visits for it to be at breakevenpoint

  1. After tax 100,000

Earningbefore tax = 100000*100/70= 142857

Profit,P = Revenue – (FC + VC)

$142857.1429= {($40 × Q) – ($257500 + 6Q)}

$400357=34Q

  • Q= 11775 visits

Thefirm will need to have 11775 inpatients for them to make an after taxprofit of $100,000

References

CarlWarren, James Reeve, Jonathan Duchac, (2015).Accounting,Cengage Learning Publisher.