Part 1)

Assume that XYZ lab has the following cost structure:

Fixed Costs = $450,000

Variable cost per test = $20

Charge per procedure = $100

1. What volume is required to break even?
2. What volume is required to generate a profit of $300,000?

Part II)

1. Using the data in Part I above, assume that Aetna proposes a 25% discount from charges, what volume would then be required to break even? Hint: Discount the charge per test before entering it into the formula.
2. Given the 25% discount from each charge per test, and a new variable cost per test which is $25, what volume would then be required to generate a profit of $300,000. Hint: Use the previously discounted charge per test to input into the formula.

Part III)

XYZ lab is planning to offer a unique test with an estimated volume of 20,000 tests per year.

1. Given the following additional data, what price should be set to obtain the $200,000 in profits?

Fixed Costs = $450,000

Variable cost per test = $20