1. (8 points) PPO of Millbridge Township (PPOMT) sells health benefit plans to local employers. PPOMT charges its clients (local employers) $50 for each office visit provided to a covered employee. PPOMT contracts with individual physicians a fee of $40 for each new patient visit and $30 for each follow-up office visit. Twenty percent of all office visits are new patient visits. PPOMT maintains an office building where all routine office visits are conducted and pays $6,000 in occupancy expenses each month for the building. PPOMT also incurs monthly staffing cost of $12,000 for maintenance and administrative staff at its facility. 


Table 2. PPOMT


  Percentage of Visits Charge (P) Variable Cost (VC) Contribution Margin (CM) Weighted Average CM
New patient visits 20%          
Follow up visits 80%        
Total 100%        


  1. Fill in Table 2 above. 
  2. What is the total weighted average contribution margin?
  3. How many office visits must PPOMT deliver to break even? Show your calculation.
  4. Assuming that PPOMT’s facility is open 21 days in a typical month, would it earn profit if each of its five contracted physicians sees an average of 12 patients each day? Explain.