a local county hospital needst to review the financials of a small substance counseling and services program that has never broken even. The 2016 results are shown:

Per Patient-visit 16800 patient-Visits

Sales 78 1,310,400.00

Expenses;

Wages/Salaries, Clinicals 215,000.00

Materials 115,750.00

Wages/Salaries, support staff 156,500.00

Overhead 675,200.00

Total Direct Cost of Service 1,162,450.00

Admin/general expenses 196,250.00

Total Expenses 1,358,700.00

Net Operating Profit/loss -48,300.00

N/B;

1. Materials and wages/salaries are variable based on number of visits.

2. 92% of the admin/general expenses are fixed; the balance is variable based on number of visits.

3. Variable overhead was equal to 22% of labor costs, with the balance fixed.

4. No change in cost behavior is expected, except it is expected that in 2017 variable overhead will

increase to 25% of labor costs.

The manager of the program has predicted that visits in 2017 will increase to an average of 1500 visits per month. The CFO is requiring that the program at a minimum will break even in 2017. He has asked for an analysis of the proposed 2017 budget and an estimate on the probability of the program reaching his required goal.

In the prepared analysis, the CFO is asking for:

1. contribution margin (CM) income statement for 2016. What is the CM% and the number of break-even visits for 2016?

2. The cost function for the program, based on the 2016 actual budget figures and 2017 expected cost changes listed above.

3. A contribution margin statement for 2017 using the program directors estimate of patient visits for 2017.

4. A CM flex-budget for 2017 for the following volume of patient visits:

a. No change in patient visits (actual 2016 patient visits)

b. 17,500

c. 18,500

5. a recommendation as to whether to continue this program, or not.