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Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity r. Brandon started a for-profit immunization clinic in
Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity 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 cach, with the aim of making them affordable to all. Immunization Clinic Inc. is located in a small building rented at a cost of S1,000 per month. The clinic hired onc 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 S1,000 per month to handle billings, collections, payroll, payments, financial records, monthly financial statements, and tax returns. Necessary equipment was purchascd for cash. Dr. Brandon has noticed that expenses for medical supplics and advertising have varied while the remaining expenses have been relativcly constant. Between 2013 and 2015, the patient volume doubled. Profits have much more than doubled. Dr. Brandon docs not understand why profits have gone up so much faster than patient volume. The CPA prepared the following forecasted income state- D: ment for 2016: Immunization clinic Inc. Projected Income Statement for Year Ended December 31, 2016 $480,000 Revenues Expenses Medical supplies $160,000 Physician salary 60,000 Nurse salary 40,000 Hourly wages 20,000 Payroll taxes-benefits 36,000 Rent 12,000 Professional fees 12,000 Equipment depreciation 5,000 6,000 Utilities Advertising 20,000 Miscellaneous expenses 15,000 (continued) Total expenses 386,000 Income before income taxes 94.000 Income tax expense 23.500 $70,500 Net income Assignments and Questions 1. Determine the breakeven volume of injections for 2016 using the follow. mula for the contribution margin ratio approach: Breakeven revenue = Total fixcd costs + [(Total variable costs / Total revenue) x Breakeven revenue]. for- 2. Dr. Brandon would like an after-tax nct income of $200,000. What volume of injections will be necessary to obtain the desired income? How many injections per day will this be, bascd on 250 working days per year? Dr. Brandon thinks that 250 injections per day is the maximum possible with cur- rent staffing. What options might he consider to help him achicve his target after- tax income of $200,0002 3. 4. Compute the likcly 2016 opcrating leverage, and briefly explain to Dr. Brandon why his net income has increascd at a faster rate than his revenues. (Hint: Degre of operating leverage = Total contribution margin / Profit.) 5. Briefly explain to Dr. Brandon why his cash flow for 2016 will likely exceed his net income
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