Question

Assume that a radiologist group practice has the following cost structure: Fixed costs $514,213 Variable cost per procedure $22 Charge (revenue) per procedure $100 Furthermore, assume that the group expects to perform 7,444 procedures in the coming year. Also assume that the practice contracts with one HMO, and the plan proposes a 18 percent discount from charges. What is the group's contribution margin per unit?

Answer 1

The group's contribution margin per unit is $60, calculated by subtracting the variable cost per procedure ($22) from the revenue per procedure after an 18 percent discount ($82).

Step-by-step explanation:

The contribution margin per unit is calculated by taking the revenue per procedure and subtracting the variable cost per procedure. In the given scenario, the charge per procedure is $100, and with an 18 percent discount, the actual revenue per procedure becomes $82 ($100 - $18). To find the contribution margin per unit, we subtract the variable cost per procedure, which is $22, from the adjusted revenue per procedure:

Contribution margin per unit = Revenue per unit after discount - Variable cost per unit
Contribution margin per unit = $82 - $22
Contribution margin per unit = $60

Thus, the group's contribution margin per unit is $60.