Budgeting & Finance - Healthcare Please provide formula(s) as work needs to be t

Question

Budgeting & Finance - Healthcare Please provide formula(s) as work needs to be transferred to excel.

Cost Behavior: Problem 10

Determine Break Even from Learning Disability Clinic Visits:

Average Price/Revenue Per Visit: $150

First Year’s Fixed Costs: $216,000 (clinical salaries, test kits, overhead)

Variable Cost: $5 per visit (based on each patient using two test booklets @ $2.50 per booklet)

Calculate: How much profit will the clinic make in the first year if they can schedule 10 patients per day (50 per week) for learning disabilities diagnostic work-ups?

Breakeven Analysis: What is the minimum volume required for the clinic in the first year in order to break-even (i.e., where Profit=0)?

Explanation / Answer

Number of visits per week = 10

Cost per week = 5*10=50

Number of weeks in the year =52

Cost in the year = 52*50 = 2600

Revenue per visit = 150

Revenue per week = 150*50 = 7500

Revenue per year = 7500*52=390000

Profit in the year 1 = Annual revenue - Annual variable cost - Annual Fixed cost

Profit in the year 1 = 390000-2600-216000 = 171400

Breakeven point =  Annual revenue - Annual variable cost = Annual Fixed cost i.e. there is no profit or no loss

Annual revenue - Annual variable cost = Contribution Margin

Contribution Margin per visit = 150-5 = 145

Let the breakeven number of units = x

145x=216000 = 1489.65 or 1490 units

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