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Explain how the CVP graphs would change if the providers were operating in a discounted fee-for-service environment.
Offering service at a fee means the fee will likely differ based on the amount of service offered. The variable and fixed expenses incurred remain the same, with similarly reduced prices for each unit. In that environment, the contribution margin is likely to drop (Limendo. 2019). For instance, if a company offers a sales price of $15 for every unit and the sales price is $30, giving the customers a discount of $5 will result in a sales price of $25 for every unit sold. But the variable expenses are expected to remain around $15. With the sum of $15 and $25 reduced by 50%, it will reduce $10. Such changes are easily noticeable. The change observed in both graphs will be the same since the sales revenue will shift to the left. The other lines will remain in the same position. This would mean that giving a discount will not have an effect on the costs and affects the contribution margin. A company might try to sell more units to recover from the lost income lost in the discount offered (Kaczorowska et al., 2019). This will cause the revenue line to shift to the left.
Explain how the CVP graphs would change in a capitated environment. Evaluate which provider is in the best position to grow its business.
In a capitated environment, the changes happening to the CVP graph are that only two lines would appear. This is because the government has covered the overhead costs for professionals within a capitated environment such as doctors and teachers. Therefore, they only remain with fixed expenses. Therefore, only the income and total and fixed expense lines will appear. Based on the data shown in the graphs, farm Y seems to be in a better position to expand. Y seems to have a positive contribution margin based on the rise in production resources compared to Farm X (Mzyece et al., 2023). Y also seems to have much larger fixed expenses. The data shows that Y is capable of maintaining low variable costs since there are fewer expenses incurred in purchasing direct labor.
2.Cost volume profits would decline as reduced fees would decrease per unit, leading to an increase in the break end points. where total revenue plus cost is equal.All units might sell for much more money than this profit. To reach the break end point, more units must be sold, which in turn calls for a higher sell volume. If the seller changed its price rates to lower fees, the graphed line’s sell volume and associated costs would also stay the same. The only difference would be a drop in service quality, which would have a significant negative effect on their reputation.
In a capitated setting, sell will move higher since the amount type offers a fixed sum for each party, keeping the revenue constant regardless of how many units are being sold. Only because the revenue is guaranteed would the break end point’s outcomes diminish. The supplier would need to sell fewer units and keep costs low in order to maintain sufficient profitability in order to gain a smaller volume of sales.if one is in a capitalist setting. Offering more services, which may raise the cost, might boost income for the fee-based service type. In my opinion, firm X has the ability to increase profits since sales can become stable and costs can continue to be kept at a minimum to handle an excessive expansion. Increase in sales can help a company turn a profit. Firm X has a larger market than Firm Y, making Firm X far more dependable and having more sales.Firm X is more effective and has more inventory than Firm. Look at the graph to see how it relates to cost and structure and how firm X’s sales show that it outsells firm Y. Although firm y can sell much more quickly than x, it will still lose money because y is also losing money.