Your Hospital’s Open Heart Program has seen a decline in volume due to the numbe
ID: 2804054 • Letter: Y
Question
Your Hospital’s Open Heart Program has seen a decline in volume due to the number of patients having stents inserted at your major competitor’s cardiac catheterization lab. The CEO is quite worried that the volume might fall below break-even. Your data gathering reveals the following: Annual Fixed Costs are $18,000,000; Average Variable Cost per case is $38,000 and Average Charge (Price) per case is $53,540. Over the past 6 months the Open Heart Program has been averaging 24 cases per week. Last year the program reported an annual volume of 1821 cases. What is your response to the CEO’s concern?
Explanation / Answer
Contribution per unit
= Selling price per unit – Variable costs per unit
= $53,540 - $38,000
= $ 15,540
Breakeven volume
= Fixed costs / Contribution per unit
= $18,000,000 / $ 15,540
= 1,158.30 or 1,159 cases
Trend for past 6 months is 24 cases per week. If the trend is followed for the entire year, projected sales for the year
= Number of weeks in a year x Sales per week
= 52 x 24
= 1,248 cases
As we can find, the projected number of cases is more than the required breakeven point and so, there is no reason of concern for the breakeven volume
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