Submitted by: Submitted by nikeboy
Views: 591
Words: 561
Pages: 3
Category: Business and Industry
Date Submitted: 01/25/2011 06:57 AM
DATE : December 27, 2009
TO : Dr. Barkley
Director
Beach Street Satellite Office
Getwell Clinics
FROM : [Name]
Management Consultant
[Company]
SUBJECT : Cost-Volume-Profit Analysis
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First, like in any profitable product or service, there is a need to analyze the different DRG products, M, J and P, as regards their costs and their behavior, and how these costs eventually affect the bottom-line. One of the most useful management decision tools as regards the relationship of costs and profit is the cost-volume-profit or CVP analysis. This tool aids management in visualizing the impact of volume and costs on profit.
Second, given the cost structure – fixed and variable costs – of the three DRG services, the fees charge to customers for each DRG service performed, and the number of hours spent, the following table presents the breakeven points for DRGs M, J and P.
|DRG |Proportion |Charge |Weighted Averaged |Fixed Cost |Breakeven Point (in |Breakeven Point (in|
| | | |Contribution Margin | |volume) |dollars) |
| |A |B |C |D |E = D / C |F = E x A |
|M |50% |$1,700 |$350 |$500,000 | 1,036 |$1,761,200 |
|J |30% |2,600 |420 |280,000 | 622 |1,617,200 |
|P |20% |900 |60 |110,000 | 415 |373,500 |
|Joint fixed costs | | |830,000 | | |
| |Total | |$830...