Case 9.6: Speedy Medical Clinic

Key concept: Determining breakeven volume for a medical clinic.

Pam Smart is CEO of the two-year-old Speedy Medical Clinic (SMC). She needs your help because SMC has had a net loss during both years of its existence. Ms. Smart would like to know the likely breakeven volume for SMC so she can decide on the appropriate strategy for attracting additional patients.

Financial and operational data for the first two years follows:

Year 1 Year 2

Revenues $350,000 $420,000

Expenses

Building Depreciation $100,000 $100,000

Equipment depreciation $50,000 $50,000

Utilities $50,000 $53,000

Admin. Salaries $150,000 $155,000

Hourly Payroll $100,000 $120,000

Supplies $50,000 $60,000

Total Expenses $500,000 $538,000

Income Before Income Taxes --$150,000 --$118,000

Number of Patients 5,000 6,000

Assignment and Questions

1. Help Ms. Smart by calculating the breakeven volume to the nearest thousand patients.

2. What actions might Ms. Smart consider that might help Speedy Medical Clinic break even?