WEEK 6 PRACTICAL EXERCISE 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 This problem is divided into 2 parts. With a set of "GIVENS", you will calculate the BREAK-EVEN VOLUME of mammo- grams 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 acti ity changes) What vou should know to solve this Practical Exer- cise: You must be able to use the Break-Even Analvsis Formulas: . Variable Cost - is defined as costs that stay the same per unit, Basic Formula: but change directly in total with a change in activity over the relative range PRICE x VOLUME FIXED COST (VARIABLE COST/UNIT x VOLUME) An example of a variable cost is the salary for a physician that is paid $50.00 per patient seen. The physician will al- ways 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 (chamges directly in total with a change in activity) . Formula to calculate break-even with a profit margin: PRICE x VOLUME FIXED COST +(VARIABLE COST/UNIT x VOLUME) +PROFIT Break-Even Analysis - is a technique to analyze the relationshijp 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 devel oped. Page 423 - 424 Exhibit 9.10 expands the basic for- mula to cover other variables . NOTE: The term Price and Reimbursement are used inter- changeably in this discussion. ALSO - The term, Volume re- fers to the number of mammograms You must be able to determine the difference in Fixed, and Variable costs