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Ch.5_Decisonmaking with CVP_Inst

# Ch.5_Decisonmaking with CVP_Inst - CHAPTER 5 Managerial...

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1 CHAPTER 5 Managerial Accounting Basics, Cost Behavior, and Profit Analysis Decision-making with CVP Analysis

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2 Learning Objectives Conduct CVP analysis on different scenarios and use results to make decisions
3 Atlanta Clinic Example Assumptions Revenue and cost data on the basis of 75,000 expected visits: Revenue per visit \$100 Total fixed costs \$4,967,462 Total variable costs \$2,113,500 Total costs \$7,080,962 Average cost / visit \$7,080,962 / 75,000 = 94.41

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4 CVP Analysis Under Discounted FFS Suppose one of Atlanta Clinic’s current payers wants a 40% discount. Payer contributes 5,000 visits. Should Atlanta Clinic agree?
5 CVP Analysis Under Discounted FFS New price per visit = 100 * (1 – 0.40) New price per visit = 100 * 0.60 = \$60

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6 P&L Statement if Payer Dropped Total revenues (\$100 x 70,000) \$7,000,000 Less Total VC (\$28.18 x 70,000)      1,972,600    Total CM (\$71.82 x 70,000) \$5,027,400 Less Fixed costs   4,967,462 Profit   \$     59,938
7 P&L Statement if Discount Given Undiscounted revenue (\$100 x 70,000) \$7,000,000 Discounted revenue (\$60 x 5,000)      300,000   Total revenues (\$97.33 x 75,000) \$7,300,000 Total VC (\$28.18 x 75,000)

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