A dentist group practice has the following cost structure:

Fixed costs $200,000

Variable cost per procedure $50

Charge (price) per procedure $150

a. What is the group's breakeven point in volume?

b. Complete the following table.

Volume Fixed Costs Total Costs Total Revenue

(Procedures)

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

Sketch out a breakeven graph depicting the BE point. Use Excel to produce the graph

2- A new medicine has been developed by Medical Electronics Corporation. It is estimated that variable operating costs will be 60% of sales (or $60 per unit), while fixed operating costs will be $100,000. The first year's sales estimates are 10,000 units at $100 per unit. The cost of the manufacturing facility was financed with debt, the interest expense associated with that debt for the first year is expected to be $20,000. Assume an income tax rate of 30%. The company will not develop or sell any other product soon.

a) Construct Medical Electronics Corporation's projected income statement for the first year of operation (complete the following table).

Sales

Less: Variable operating costs

Fixed operating costs

Earnings before interest and taxes (EBIT)

Less: Interest expense

Earnings before taxes (EBT)

Less taxes (20%)

Earnings after taxes (EAT)

b) Compute the first year expected degree of operating leverage (DOL)

c) Interpret the calculated degree of operating leverage. See textbook, page 132.

d) Compute the Operating Break-even point in quantity