Law Week 8 Assignment 2- Healthcare Finance

Healthcare Financial Management and Economics

Week 8 Assignment 2 — Southeast Imaging

Center

Assignment 2: Break-Even Point Formulas

Before making hiring or purchasing decisions, healthcare organizations must consider whether the decision is financially profitable. By calculating break-even points, organizations are able to examine actual costs and make more sound financial decisions. For this Assignment, you use data from the Southeast Imaging Center and calculate break-even points.

Scenario: Southeast Imaging Center is a small imaging center with two analogue film or screen units. As the director of the center, Juanita Hernandez has been asked to determine if the current staffing is correct for her place or should she add another aide. She currently uses 2 mammography units, 2 Certified Technologists, and 1 aide. She has analyzed the current costs and determined the following:

Reimbursement per screen $125

Equipment lease per month ($12,000 per machine) $24,000

Certified Technologists costs per mammography (2) @ $35 $70

Technologists aide per mammography $20

Variable cost per mammography $12

Equipment maintenance per month ($8,000 per machine) $16,000

To prepare for the Assignment: Examine the Southeast Imaging Center scenario. Reflect on how you will use the provided financial data to calculate break-even points. Refer to Chapter 11 of Gapinski’s Understanding Healthcare Financial Management for additional guidance.

The Assignment:

Given the above information, use the “Week 8 Assignment 2 Break Even Excel Template” to answer these items as a Department:

A. Solve for monthly volume to break even. B. Solve for monthly volume needed to break even at desired $5,000 per month

profit level. C. Solve for volume needed to break even at new reimbursement of $110 per

screen and no profit. D. Solve for volume needed to break even with one(1) additional aide.

Your Assignment is due by Day 7 of Week 8.

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How to Calculate Break-Even Point

One of the most important metrics for a business is knowing the break-even point.

Break-even is the calculation of how many items need to be sold, or services rendered,

before the business becomes profitable. At the break-even point, revenue is exactly

equal to total expenses, and there is no profit or loss. The break-even formula is:

(Price Per Unit × Quantity Sold) − (Variable Cost × Quantity Sold) − Fixed Costs

= Break-Even Point

Use the following scenario to calculate the break-even point for items sold or services

rendered for the 2 Sweet Candy Company. The goal is to find the Quantity of product

the company needs to sell to make sure each candy bar is profitable.

Scenario: The 2 Sweet Candy Company manufactures candy bars. The Price Per Unit

for each candy bar is $2. The Variable Costs per unit are $1.50. The Fixed Costs are

$50,000.

Step 1: Gather the following information to calculate the break-even point of a product:

• Price Per Unit = $2

• Quantity Sold = y

• Variable Costs = $1.50

• Fixed Costs = $50,000

Step 2: Input the information given into the break-even formula. For the unknown

Quantity Sold use y.

(Price Per Unit = $2 × Quantity Sold = y) − (Variable Costs = $1.50 × Quantity

Sold = y) − Fixed Costs = $50,000 = Break-Even = 0

Step 3: Start the calculations to solve for Quantity Sold (y) to find the Break-Even

Point (0).

($2 × y) − ($1.50 × y) − $50,000 = 0

($2 − $1.50) × y − $50,000 = 0

(.50) × y − $50,000= 0

$50,000 / .50 × y = 100,000

($2 × 100,000) − ($1.50 × 100,000) − $50,000 = 0

($200,000) − ($150,000) − $50,000 = 0

$50,000 − $50,000 = 0

Break-Even = 100,000 candy bars

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Once you solve for the break-even point, you can determine other milestones, like how

many candy bars you’d need to sell to make a $70,000 profit.

($2 × 240,000) − ($1.50 × 240,000) − $50,000 = $70,000

($480,000 − $360,000) − $50,000 = $70,000

$120,000 − $50,000 = $70,000

To make a $70,000 profit, the 2 Sweet Candy Company will need to sell 240,000 candy

bars.

Week 8 Assignment 2 Template

Break-Even Point

Part a.

Part b.

Part c.

Part d.

Givens From Problem:

Costs

Dollars

No.

Dollars

No.

Dollars

No.

Dollars

No.

A

B

C

D

E

F

G

H

I

Reimbursement A

Reimbursement B

Reimbursement C

Reimbursement D

Per Mammography (P)

Per Mammography (P)

Per Mammography (P)

Per Mammography (P)

Fixed Costs

Fixed Costs

Fixed Costs

Fixed Costs

Total Fixed Costs (TFC)

Total Fixed Costs (TFC)

Total Fixed Costs (TFC)

Total Fixed Costs (TFC)

Variable Costs

Variable Costs

Variable Costs

Variable Costs

Variables Costs based on Dollar Amount per Unit

Variables Costs based on Dollar Amount per Unit

Variables Costs based on Dollar Amount per Unit

Variables Costs based on Dollar Amount per Unit

Sum:

Sum:

Sum:

Sum:

Break-Even Point

Break-Even Point

Break-Even Point

Break-Even Point

Break-Even Units (X)

X = TFC / (P - V)

Break-Even Units (X)

X = TFC / (P - V)

Break-Even Units (X)

X = TFC / (P - V)

Break-Even Units (X)

X = TFC / (P - V)

Targeted Profit

Targeted Profit

Targeted Profit

Targeted Profit

Targeted Profit (TF)

Targeted Profit (TF)

Targeted Profit (TF)

Targeted Profit (TF)

Units required to reach targeted TF, X = (TFC + TF) / (P-V)

Units required to reach targeted TF, X = (TFC + TF) / (P-V)

Units required to reach targeted TF, X = (TFC + TF) / (P-V)

Units required to reach targeted TF, X = (TFC + TF) / (P-V)

Units

Units

Units

Units