Reference no: EM132798267

Dr. Smith is deciding on whether to open a new clinic. He estimates that the annual Fixed Overhead costs for the center will be $200,000. He also estimates that he will have $100,000 is fixed staffing costs. Dr. Smith's office manager has told him that his variable costs will be $15 per patient in staffing costs, plus an additional $5 per case in medical supplies. In studying the fee schedules of Medicare and Blue Cross, Dr. Smith feels that he will earn approximately $100 per case based on both the payer mix and types of patient visits he will be seeing.

1. What is Dr. Smith's incremental profit per case?
2. Based on the information given, what volume of cases does Dr. Smith need to have in order to break-even?
3. Dr. Smith's office manager has told him he will need to clear an additional $150,000 of cash flow (above break-even) in order to pay the debt service on the cost of the equipment and yield the required return on the investment.
4. What volume of cases does Dr. Smith need to do to meet this target? What is the average cost per case at this volume?
5. Dr. Jones' accountant has told him he will need to clear an additional $200,000 of cash flow (above break-even) in order to pay the debt service on the cost of the equipment and yield the required return on the investment.
6. What volume of cases does Dr. Jones need to do to meet this target?
7. What is the average cost per case at this volume?