Expense Forecasting Scenario:
Based on the information provided, the following expense forecast has been prepared for 20X1:
| Expense Type | Year to Date Expense | Annualization for Fixed | Annualization for Variable | Total Annualized Amounts |
|---|---|---|---|---|
| Fixed Expenses | $210,000 | $420,000 | – | $420,000 |
| Variable Expenses | $1,200,000 | – | $2,400,000 | $2,400,000 |
| Joint Commission Survey | $50,000 | $100,000 | – | $100,000 |
| Salary and Fringe Benefits | – | – | – | $384,000 |
| Total | $1,460,000 | $520,000 | $2,400,000 | $2,304,000 |
Note: The adjusted total for year-to-date fixed expenses is $210,000 – $50,000 = $160,000.
Financial Analysis Cycle:
Marginal Profit and Loss Statement Scenario:
| Category | Amount |
|---|---|
| Revenue (1,400 procedures * $1,000) | $1,400,000 |
| Less: Cost of Supplies (1,400 procedures * $300) | $420,000 |
| Gross Margin | $980,000 |
| Less: Salary Costs | $540,000 |
| Less: Fringe Benefits (25% of $540,000) | $135,000 |
| Less: Rent | $55,000 |
| Less: Operating Costs | $120,000 |
| Net Margin | $130,000 |
Based on the analysis, the opportunity should be pursued as it is expected to yield a net margin of $130,000.
Break-Even Analysis Scenario:
The contribution margin per unit is calculated as follows:
Contribution Margin = Price per Unit – Variable Cost per Unit = $1,075 – $420 = $655
The break-even point is calculated as follows:
Break-even Point = Fixed Costs / Contribution Margin = $4,700,000 / $655 = 7,175.57
Since the anticipated demand is 8,000 units and the capacity is 16,500 units, the new service is financially viable as the number of units required to break even is less than the anticipated demand.
Benefit/Cost Ratio Analysis Scenario:
The benefit/cost ratio is calculated as follows:
Total Benefits = (150,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^1 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^2 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^3 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^4 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^5 = $11,032,023.29
Total Costs = $4,500,000 + $4,950,000 + ($12.5 per hour * 2,000 hours per FTE * 10 FTEs * 5 years * 1.2 fringe benefit rate) = $7,200,000
Benefit/Cost Ratio = Total Benefits / Total Costs = $11,032,023.29 / $7,200,000 = 1.53
Based on the
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
