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Assume that a radiologist group practice has the following cost structure: Fixed costs Variable cost per procedure Charge (price) per procedure $500,000 $25 $100 Complete the following table Revenue Fixed Costs Variable Costs Total Costs Average Cost Volume 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 f. Describe the relationship between volume and average cost in this particular cost structure. Please explain EXHIBIT 5.5 Total revenues ($100 x 75,000) Total variable costs ($28.18 x 75,0oo) $7.500,000 Atlanta 2,113,500 Clinic: 2016 $5,386,500 Base Case Total contribution margin ($71.82 x 75,00o) Fixed costs Profit 4.967,462 Forecasted P&L S 419,038 Statement (based on 75,000 patient calculation, so it is not profit. Because variable costs have been subtracted from revenues rather than total costs, the contribution margin is the dollar amount per visit available to cover Atlanta Clinic's fixed costs. Only after fixed costs are fully covered does the contribution margin begin to contribute to profit. With a contribution margin of $71.82 on each of the clinic's 75,000 visits, the projected base case total contribution margin for 2016 is $71.82 x 75,000 $5,386,500, which is sufficient to cover the clinic's fixed costs of $4 967 462 and then nrovide $5 386500-$4 967.462 $419.038 profit

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