You are considering starting a walk-in clinic. your financial projections for the first year of operations are as follows:
number of visits 10,000
utilities $2,500
wages and benefits $220,000
medical supplies $50,000
rent $5,000
administrative supplies $10,000
depreciation $30,000
assume that all costs are fixed except supplies costs, which are variable.
a. what is the clinicâs underlying cost structure?

A.  Clinic’s underlying cost structure =>  Fixed Cost + Variable Cost * (Volume) Fixed Cost => Rent + Utilities + Wages and Benefits + Depreciation => 5,000 + 2,500 + 220,000 +30,000. Fixed Cost = $257,500

Variable Cost=Medical Supplies + Administrative Supplies= 50,000+10,000.

=$60,000.

B. Clinics Expected Total Cost= Fixed Cost + Variable Cost=$257,500 +$60,000= $317,500.

C. Clinic’s Estimated Total Cost at 7,500 visits= Fixed cost (5,000 + 2,500 + 220,000 +30,000) + Variable cost=(50,000/10,000)*7,500 +(10,000/10,000)*7,500 =$257,500 + 35,500+7,500=$300,500.

D. Average cost per visit at 7,500, 10,000 and 12,500 visits

    i. Average cost per visit at 7,500 = 300,500/7,500=$40.07

    ii. Average cost per visit at 10,000 = 317,500/10,000=$31.75

    iii. Average cost per visit at 12,500=  Fixed cost + Variable cost

             = $257,500 + (5*12,500+1*12,500) =$332,500

             =$332,500/12,500=$26.60

Explanation:

Fixed costs will remain the same irrespective of the number of visit.

Variable costs depend on the number of visit.

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