Cost Analysis: THE PURCHASE OF HEALTHCARE EQUIPMENT:

An equipment acquisition proposal was being considered by a large health care organization, XYZ Health Care. The array machine will enable the hospital to perform autoimmunity tests (for immunoglobulins G, M, and A and complements C3 and C4) in-house rather than sending them to a reference laboratory. Test turnaround time is expected to decrease by 2 days. The array machine costs $50,000, with a useful life of 5 years. The depreciation schedule will be $10,000/year. The expected volume for tests is one of each of the five autoimmunity tests per day. Having the tests done by the reference laboratory costs the hospital an average of $10/test. The hospital's average charge to patients is $20/test. If the array machine is acquired and the tests done in-house, the costs of reagents would average $2/test. The array machine can run a maximum of 40 patient samples and perform 20 different tests on each sample every 2 hours. Except in extraordinary circumstances, tests would be run Monday thorough Saturday. The machine requires approximately 1 hour of technician time (valued at $15/hour) each day to calibrate it, to conduct a test run for control purposes and to perform general maintenance. This is a fixed cost because it does not vary by volume. Technician setup time to run tests is negligible. Beyond the five autoimmunity tests the laboratory wants to perform in-house, the machine can also perform apolipoprotein cardiac profiles that are currently done on equipment in the clinical chemistry department. The array machine can provide a quantitative measure and not just the positive or negative indicator that the clinical chemistry department's current equipment gives. Deliverables: The CEO of XYZ Health Care has hired you as consultants to prepare a report addressing the following questions listed below. Submit one (1) single submission at the conclusion of Week Eleven no later than Sunday, by 11:59 PM EST. This is a group assignment.

BREAK EVEN ANALYSIS: If hospital pay $10.00 per test by having the tests done outside laboratory, and charges patient $20.00 per test. If array machine is acquired and test done in house, it will cost hospital 2.00 per for reagents. On average hospital performs five autoimmunity tests per day. That means hospital perform 1560 tests. To calculate break even analysis based on five years life array machine for autoimmunity tests per year: R = Revenue; P = revenue received per units sold; F = fixed costs; S = numbers of units sold; V = variables cost; B = break even number units sold; T = total fixed cost. Break even point (BEP) in units = fixed cost/sales price per units variable cost per units. And BEP in dollars = sales price per units x BEP in units ( Shaun,2018 par 4,5). (BEP) units; =F/(P-V) therefore, $50,000/($20.00-$2.00) = $50,000/18 BEP = 2777.7 0r 27778 units BEP in dollar = BEP x P= 2778 x $20.00 = $55,555.5556 or $55,556. The hospital must reach the break even amount of $55,556. In other hand, if BEP base on total cost of the equipment, then the total annual fixed cost would be $10,000. That will be $10,000/($20.-$2) = $10,000./18 = 556 tests. The cost of array machine calibrate from Monday to Saturday excludes Sunday will be 365 days 52 Sundays = 313 days, then to calibrate the machine require 1-hour technician time Now 313 days x $15.00 (cost of technician per hr) = $4, 695 The total fixed cost is now $50,000 + $4,695 = $54,695. Therefore, total fixed cost/profit per unit variable cost per units [B= F/(P-V)] =$54,695/$20-$2) = $54695/$18 = 3038.611 or 3,039 tests to break even cost.

QUESTION: Given the present volume of tests, would there be an annual net contribution and, if so, how much?