Reference no: EM132944237

Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. Past experience indicates the population served will average two visits per year.

Problem a. Construct the base case projected P&L statement on the contract.

Problem b. Sketch two CVP analysis graphs for the clinic-one with number of visits on the x -axis and one with number of members on the x -axis.

Problem c. What is the clinic's contribution margin on the contract?

Problem d. What profit gain can be realized if the clinic can lower per member utilization to 1.8 visits?

Net revenue ($150 * 20000 members) $ 3,000,000

less- cost of sales ($15(per visit) * 2 * 20000) $ 600,000

gross profit $ 2,400,000

Less: - fixed expenses $ 2,000,000

Net profit $ 400,000