Question
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
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 Atlantic Imaging Center and calculate break-even points.
Scenario: Atlantic 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 it is financially profitable to add an additional technologist aide to their current staff of two technologists. She has analyzed the current costs and determined the following:
| Reimbursement per screen | $80 |
| Equipment costs per month ($800 per machine) | $1,600 |
| Technologists costs per mammography | $18 |
| Technologists aide per mammography | $5 |
| Variable cost per mammography | $9 |
| Equipment maintenance per month per machine | $750 |
| Indirect Costs | $0 |
To prepare for the Assignment:
Examine the Atlantic Imaging Center scenario. Reflect on how you will use the provided financial data to calculate break-even points. Refer to Chapter 9 of Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications for additional guidance.
The Assignment:
Given the above information, use the Week 6 Assignment 2 Break Even Excel Template to answer these items:
Solve for monthly volume to break even.
Solve for monthly volume needed to break even at desired $5,000 per month profit level.
Solve for volume needed to break even at new reimbursement of $55 per screen and no profit.
Solve for volume needed to break even with the addition of an aide for the technologists.
Use the following template:
| Break-Even Point | |||||||||||||||
| Part a. | Part b. | Part c. | Part d. | ||||||||||||
| Givens: | Dollars | No. | Dollars | No. | Dollars | No. | Dollars | No. | |||||||
| A | Reimbursement per mammography | ||||||||||||||
| B | Equipment cost per month per machine | 2 | |||||||||||||
| C | Intentionally left blank | ||||||||||||||
| D | Technologist cost per mammography | 2 | |||||||||||||
| E | Technologist aide cost per mammography | 1 | |||||||||||||
| F | Variable cost per mammography | ||||||||||||||
| G | Monthly maintanence per machine | 2 | |||||||||||||
| H | Indirect costs | ||||||||||||||
| I | Desired profit | ||||||||||||||
| a. Solve for monthly volume to break even: | |||||||||||||||
| Variable | Total | Indirect | Desired | ||||||||||||
| Price | Volume | Cost per Unit | Volume | Fixed Cost | Costs | Profit | |||||||||
| (A) | ? | (D + E + F) | ? | (B + G) | (H) | (I) | |||||||||
| Setup: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | + | $0 | + | $0 | ||
| Solution: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | $0 | + | $0 | |||
| $0.00 | x | Volume | = | $0 | |||||||||||
| Volume | = | #DIV/0! | |||||||||||||
| b. Solve for monthly volume needed to break even at desired profit level: | |||||||||||||||
| Variable | Total | Indirect | Desired | ||||||||||||
| Price | Volume | Cost per Unit | Volume | Fixed Cost | Costs | Profit | |||||||||
| (A) | ? | (D + E + F) | ? | (B + G) | (H) | (I) | |||||||||
| Setup: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | + | $0 | + | $0 | ||
| Solution: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | $0 | + | $0 | |||
| $0.00 | x | Volume | = | $0 | |||||||||||
| Volume | = | #DIV/0! | |||||||||||||
| c. Solve for volume needed to break even at new charge and no profit: | |||||||||||||||
| Variable | Total | Indirect | Desired | ||||||||||||
| Price | Volume | Cost per Unit | Volume | Fixed Cost | Costs | Profit | |||||||||
| (A) | ? | (D + E + F) | ? | (B + G) | (H) | (I) | |||||||||
| Setup: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | + | $0 | + | $0 | ||
| Solution: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | $0 | + | $0 | |||
| $0.00 | x | Volume | = | $0 | |||||||||||
| Volume | = | #DIV/0! | |||||||||||||
| d. Solve for volume needed to break even with additional labor cost | |||||||||||||||
| Variable | Total | Indirect | Desired | ||||||||||||
| Price | Volume | Cost per Unit | Volume | Fixed Cost | Costs | Profit | |||||||||
| (A) | ? | (D + E + F) | ? | (B + G) | (H) | (I) | |||||||||
| Setup: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | + | $0 | + | $0 | ||
| Solution: | $0.00 | x | Volume | = | $0.00 | x | Volume | + | $0 | + | $0 | + | $0 | ||
| $0.00 | x | Volume | = | $0 | |||||||||||
| Volume | = | #DIV/0! | |||||||||||||
| Note: Since the Technologist Aide is presented as a variable cost, the only difference in the setup of this problem and Part A | |||||||||||||||
| is raising the variable cost by the amount of the Technologist Aide per mammography. | |||||||||||||||
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