Case 9.2: In a 9.2: In and Out Clinic Breakeven ot: Determining contribution marain and computing breakeve Key concept: Detes polume d Out Clinic's summary income statement for come statement for its most recent fiscal year follows: n and Out Revenues Expenses Net Loss $20,000 25,000 ($ 5,000) e revenue in the income statement was obtained from 100 patients. A judgment by management of the individual expense accounts indicates that expenses can rized as $15,000 of fixed expenses and $10,000 of variable expenses. tal analysis by man be categorized as $i Questions ven the cost-revenue relationships in the income statement, is In and Out Clinic above or below its breakeven volume? 2. What is the average revenue per patient? 3. What is the average variable cost per patient? 4. What is the "contribution margin at is the contribution margin per patient? lume: BE = Total fixed 5. Assume that the cost-revenue relationships from the prior year will hold in current year. Use the following formula for breakeven volume: BE = T. costs / (Unit revenue - Unit variable cost). What is the likely breakeven of patients? F Total expenses Income before income taxes Income tax expense Net income 386,000 94,000 23,500 $70,500 Assignments and Questions o the following for- enue = Total fixed 1. Determine the breakeven volume of injections for 2016 using the follow mula for the contribution margin ratio approach: Breakeven revenue costs + [(Total variable costs/Total revenue) x Breakeven revenuel. 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. Dr. Brandon thinks that 250 injections per day is the maximum possible with cur- rent staffing. What options might he consider to help him achieve his target after- tax income of $200,000? mpute the likely 2010 operating leverage, and briefly explain to Dr. why his net income has increas cased at a faster rate than his revenues. (Hint: Degree rating leverage = Total contribution margin / Profit.) of operating lever Briefly explain to Dr. Brandon why his cash flow for 2016 will likely exceed 5. Briefly expla net income
