Problem # 6 (15 points) You are considering opening a new service center in rental space....

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Problem # 6 (15 points) You are considering opening a new service center in rental space. Volume in the first year is expected to be 2,800 visits. This is expected to grow by 200 visits each year. The price you will charge for each visit is $500 and the collection rate is 85%. Staff costs are $600,000 for salaries and an additional 20% for fringe benefits. Supplies will cost $120,000 for fixed items and $75 per procedure for variable items. The space will cost 3,000/month for rent and an additional $350/month for utilities. Based on marginal analysis, would you pursue this venture? 56900 Visit Volume 2800 Avg. Reimbursement per V $425 7 Total Net Revenue for Visit $1,190,000 8 9 Visit Volume 2800 10 Fixed Cost $120,000 11 Staff $720,000 12 Variable Cost per Visit $75 13 Rent $36,000 14 Utilities $4,200 15 Total Cost for Visits $1,090,200 16 Profit of (Loss) from Visits $99,800 17 18 Add'l Cases 200 19 Avg. Revenue per Case $425 20 Marginal Revenue $85,000 21 Marginal Cost 22 Total Marginal Cost 23 Net Profit 24 25 Problem # 6 (15 points) You are considering opening a new service center in rental space. Volume in the first year is expected to be 2,800 visits. This is expected to grow by 200 visits each year. The price you will charge for each visit is $500 and the collection rate is 85%. Staff costs are $600,000 for salaries and an additional 20% for fringe benefits. Supplies will cost $120,000 for fixed items and $75 per procedure for variable items. The space will cost 3,000/month for rent and an additional $350/month for utilities. Based on marginal analysis, would you pursue this venture? 56900 Visit Volume 2800 Avg. Reimbursement per V $425 7 Total Net Revenue for Visit $1,190,000 8 9 Visit Volume 2800 10 Fixed Cost $120,000 11 Staff $720,000 12 Variable Cost per Visit $75 13 Rent $36,000 14 Utilities $4,200 15 Total Cost for Visits $1,090,200 16 Profit of (Loss) from Visits $99,800 17 18 Add'l Cases 200 19 Avg. Revenue per Case $425 20 Marginal Revenue $85,000 21 Marginal Cost 22 Total Marginal Cost 23 Net Profit 24 25