Version:0.9 StartHTML:0000000105 EndHTML:0000002889 StartFragment:0000000141 EndFragment:0000002849

Question 3

The Eastside Clinic estimates that in the year ahead its estimated patient volume will be 75,000. Estimated total costs are $7,080,962 made up of $4,967,462 in

fixed costs and $2,113,500 in variable costs. Expected revenue per patient is $100.

a. What will the Clinics profit or loss be if it does treat 75,000?

b. What is the Clinics break even point i.e. how many patients does it have to treat to break even?

c. The government pays for 25,000 of the Clinics patients. Under a new contract the government only wants to pay the Clinic an average of $60 per patient. If the Clinic refuses to sign this contract the government intends setting up its own Clinic. Assuming that total patient numbers remain at their current levels, what would be the impact on the Clinics profitability of accepting this proposal? What would be the impact on the Clinics profitability of rejecting this proposal?

d. What would be your advice to the Clinic in above scenario?