Question

Triangle Pediatrics currently provides 1,000 visits per year at a price of $50 per visit. The variable cost per visit (variable cost rate) is $30, and total fixed costs are $15,000. The business manager suggests that Triangle Pediatrics can increase the number of visits to 1,200 per year by cutting the price per visit by $5 and increasing the fixed advertising budget by $5,000.  

A) Based on this scenario, what is the contribution margin for a volume of 1,000 units?

B) Based on this scenario, what is the profit for a volume of 1,000 units?

C) Based on this scenario, what are the revenues for a volume of 1,200 units?

D) Based on the base case scenario, what is the volume required to breakeven?

Answer 1

Req A:
Selling price			45
Less: VC per visit			30
CM per visit			15
Multiply: Number of visits			1000
Total contribution			15000
Req B:
Total Contribution at 1000 visits			15000
Less: Fixed cost
Current fixed cost		15000
Advertisement cost		5000
Total fixed cost			20000
Net Loss			-5000
Req c:
Revenues at 1000 units:
Number ofvisits			1000
Multiply: Revise selling price			45
Total revenue			45000
Req d:
Selling price			50
Less: VC per visit			30
CM per visit			20
Break even visits:
Fixed cost			15000
Divide: CM per unit			20
Break even visits:			750