Determine the breakeven volume of injections for 2016 using the following formula for the contribution margin ratio
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Question:
Determine the breakeven volume of injections for 2016 using the following formula for the contribution margin ratio approach: Breakeven revenue = Total fixed costs + [(Total variable costs / Total revenue) × Breakeven revenue].
2. Dr. Brandon would like an after-tax net income of $200,000. What volume of injections will be necessary to obtain the desired income? How many injections per day will this be, based on 250 working days per year?
3. Compute the likely 2016 operating leverage, and briefly explain to Dr. Brandon why his net income has increased at a faster rate than his revenues. (Hint: Degree of operating leverage = Total contribution margin / Profit.)
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Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity D r. Brandon started a for-profit immunization clinic in January 2013. The clinic was founded with the vision of providing five types of immunization injections for a low price of $10 each, with the aim of making them affordable to all. Immunization Clinic Inc. is located in a small building rented at a cost of $1,000 per month. The clinic hired one nurse to work full-time and two college students to work 20 hours per week. A certified public accountant (CPA) also was hired at a cost of $1,000 per month to handle billings, collections, payroll, payments, financial records, monthly financial statements, and tax returns. Necessary equipment was purchased for cash. Dr. Brandon has noticed that expenses for medical supplies and advertising have varied while the remaining expenses have been relatively constant. Between 2013 and 2015, the patient volume doubled. Profits have much more than doubled. Dr. Brandon does not understand why profits have gone up so much faster than patient volume. The CPA prepared the following forecasted income statement for 2016: Revenues Expenses Immunization Clinic Inc. Projected Income Statement for Year Ended December 31, 2016 Total expenses Income before income taxes Income tax expense Net income Medical supplies Physician salary Nurse salary Hourly wages Payroll taxes-benefits Rent Professional fees Equipment depreciation Utilities Advertising Miscellaneous expenses $160,000 60,000 40,000 20,000 36,000 12,000 12,000 5,000 6,000 20,000 15,000 $480,000 386,000 94,000 23,500 $70,500 Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity D r. Brandon started a for-profit immunization clinic in January 2013. The clinic was founded with the vision of providing five types of immunization injections for a low price of $10 each, with the aim of making them affordable to all. Immunization Clinic Inc. is located in a small building rented at a cost of $1,000 per month. The clinic hired one nurse to work full-time and two college students to work 20 hours per week. A certified public accountant (CPA) also was hired at a cost of $1,000 per month to handle billings, collections, payroll, payments, financial records, monthly financial statements, and tax returns. Necessary equipment was purchased for cash. Dr. Brandon has noticed that expenses for medical supplies and advertising have varied while the remaining expenses have been relatively constant. Between 2013 and 2015, the patient volume doubled. Profits have much more than doubled. Dr. Brandon does not understand why profits have gone up so much faster than patient volume. The CPA prepared the following forecasted income statement for 2016: Revenues Expenses Immunization Clinic Inc. Projected Income Statement for Year Ended December 31, 2016 Total expenses Income before income taxes Income tax expense Net income Medical supplies Physician salary Nurse salary Hourly wages Payroll taxes-benefits Rent Professional fees Equipment depreciation Utilities Advertising Miscellaneous expenses $160,000 60,000 40,000 20,000 36,000 12,000 12,000 5,000 6,000 20,000 15,000 $480,000 386,000 94,000 23,500 $70,500
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1Since only medical supplies and advertising have varied down the years we can say thes... View the full answer
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