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Question 3
The Eastside Clinic estimates that in the year ahead its
estimated patient volume will be 75,000. Estimated total costs are
$7,080,962 – made up of $4,967,462 in
fixed costs and $2,113,500 in variable costs. Expected revenue
per patient is $100.
a. What will the Clinic’s profit or loss be if it does treat
75,000?
b. What is the Clinic’s break even point – i.e. how many
patients does it have to treat to break even?
c. The government pays for 25,000 of the Clinic’s patients.
Under a new contract the government only wants to pay the Clinic an
average of $60 per patient. If the Clinic refuses to sign this
contract the government intends setting up its own Clinic. Assuming
that total patient numbers remain at their current levels, what
would be the impact on the Clinic’s profitability of accepting this
proposal? What would be the impact on the Clinic’s profitability of
rejecting this proposal?
d. What would be your advice to the Clinic in above
scenario?