Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity rBrandon 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 he 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 6ster than patient volume. The CPA prepared the following forecasted income state- ment for 2016 Immunization Clinic Inc. Projected Income Statement for Year Ended December 31, 2016 sE nobecd nd Su99 025 Donidaf $480,000 Revenues Expenses Medical supplies $160,000 60,000 Physician salary Nurse salary 40,000 Hourly wages 20,000 36,000 Payroll taxes-benefits nobr 12,000 Rent 12,000 Professional fees 5,000 Equipment depreciation 6,000 Utilities 20,000 Advertising 15,000 Miscellaneous expenses (continued) 386,000 94,000 Total expenses 23,500 Income before income taxes $70,500 Income tax expense Net income Assignments and Questions mula for the contribution margin ratio approach: Breakeven revenue costs +[(Total variable costs/Total revenue) x Breakeven revenuel Total fixed 1. Determine the breakeven volume of injections for 2016 using the following for- 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? 4. 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.) 5. Briefly explain to Dr. Brandon why his cash flow for 2016 will likely exceed his net income. Case 9.5: Immunization Clinic Inc. Key concept: Determining volume to achieve target profit for a taxable entity rBrandon 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 he 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 6ster than patient volume. The CPA prepared the following forecasted income state- ment for 2016 Immunization Clinic Inc. Projected Income Statement for Year Ended December 31, 2016 sE nobecd nd Su99 025 Donidaf $480,000 Revenues Expenses Medical supplies $160,000 60,000 Physician salary Nurse salary 40,000 Hourly wages 20,000 36,000 Payroll taxes-benefits nobr 12,000 Rent 12,000 Professional fees 5,000 Equipment depreciation 6,000 Utilities 20,000 Advertising 15,000 Miscellaneous expenses (continued) 386,000 94,000 Total expenses 23,500 Income before income taxes $70,500 Income tax expense Net income Assignments and Questions mula for the contribution margin ratio approach: Breakeven revenue costs +[(Total variable costs/Total revenue) x Breakeven revenuel Total fixed 1. Determine the breakeven volume of injections for 2016 using the following for- 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? 4. 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.) 5. Briefly explain to Dr. Brandon why his cash flow for 2016 will likely exceed his net income