This problem is divided into 2 parts. With a set of "GIVENS", you will calculate the BREAK-EVEN VOLUME of mammograms. What you should know to solve this Practical Exercise: You must be able to use the Break-Even Analysis Formulas: Basic Formula: PRICEX VOLUME - FIXED COST + (VARIABLE COST/UNIT X VOLUME) Formula to calculate break-even with a profit margin: PRICEXVOLUME - FIXED COST +(VARIABLE COST/UNIT XVOLUME) + PROFIT Break-Even Analysis - is a technique to analyze the relationship among revenues, costs, and volume It is also called cost-volume-profit or CVP analysis. Page 412 - Exhibit 9.3 shows how the formula was developed. Page 423-424 Exhibit 9.10 expands the basic formula to cover other variables. NOTE: The term Price and Reimbursement are used interchangeably in thi discussion. ALSO - The term, Volume refers to the number of mammograms. You must be able to determine the difference in Fixed, and Variable costs. Fixed Cost - is defined as costs that stay the same in total over the relevant range but change inversely on a per unit basis as activity change. An example of fixed cost is rent on a building used as a clinic. If the rent is $1,000.00 per month, it will remain the same regardless of the number of patients seen in the clinic (same in total over the relevant range). However, the more patients seen in the clinic, the less per patient it costs to rent the building (changes inversely on a per unit basis as activity changes). Variable Cost -- is defined as costs that stay the same per unit, but change directly in total with a change in activity over the relative range. An example of a variable cost is the salary for a physician that is paid $50.00 per patient seen. The physician will always be paid $50.00 per visit (cost stays the same per unit), but if he sees 10 patients, he will be paid $500.00; if he sees 20 patients, he will be paid $1,000.00 (changes directly in total with a change in activity) PART A-What is the patient volume needed per month to cover fixed and variable costs? Part A Givens Reimbursement per Mammogram $140 Equipment Lease per Month per Machine (You have 1 Machine) $12,000 Equipment Maintenance per Month per Machine (You have 1 Machine) $9,000 Technologist Cost per Mammogram $35 Tech Aide cost per Mammogram $20 Other Variable Cost per Mammogram S13 Steps to follow: Identify the formula you will use? Identify total your fixed and variable costs? Insert your givens into the formula and solve the equation-remember your basic math principals YOU MUST SHOW YOUR WORK HERE PART B-What is the patient volume needed per month if the company desires to cover its fixed and variable costs and make a $3,000.00 profit? Part B Givens Reimbursement per Mammogram S140 Equipment Lease per Month per Machine (You have 1 Machine S12,000 Equipment Maintenance per Month per Machine (You have 1 Machine) 59.000 Technologist Cost per Mammogram $35 Tech Aide cost per Mammogram $20 Other Variable Cost per Mammogram S13 Desired Profit S3,000.00 Steps to follow: Identify the formula you will use? Identify/total your fixed and variable costs? Insert your givens into the formula and solve the equation-remember your basic math principals YOU MUST SHOW YOUR WORK HERE
