As the orthopedic manager, you are reviewing the past two years of data from the cost-accounting system. The decrease in volume of activity (number of cases performed) this past year relative to the previous year is of concern.

 

	FY 2021	FY 2022
Cases (Count)	100	80
Gross Revenue	$327,825	$320,825
Actual Payments (Net Revenue)	$108,625	$104,280
Variable Cost	$68,205	$52,980
Contribution Margin	$40,420	$51,300
Indirect Cost	$62,378	$50,290
Net Margin	-$21,958	$1,010

 

 

1. The lower number of cases seems to explain the lower Gross Revenue and Net revenue. Consider the Gross Revenue per case and Net Revenue per case and provide some potential explanations for the changes from FY 2021 to FY 2022.
2. What is the variable cost per case for each year? What could explain the change from FY 2021 to FY 2022?
3. What is the breakeven point for each year? How many more cases would have needed to be performed in FY2021 to reach a positive Net Margin?
4. Make predictions for FY 2023:
   1. Using the Contribution Margin per case of FY 2022, predict the total Contribution Margin for FY 2022 under the assumption that you will bring the number of cases back to 100 for FY 2023.
   2. Apply the same reasoning to Indirect Cost to predict Indirect Cost in FY 2023 (so if the number of cases grow from 80 to 100, this represents a 25% growth, which means Indirect Cost should also increase by 25%).
   3. What is the resulting projected Net Margin for FY 2023?