Your nursing home defines output as a patient day. Its present volume is 26,000 patient days. The average cost per day is $90.00. Present revenues and costs are presented below:

Charge Patients (6,000 Patient Days) $750,000

Fixed-Price Patients (20,000 Patient Days) 1,800,000

Total Net Revenues $2,550,000

Costs:

Fixed Costs $1,170,000

Variable Costs ($45/PD) 1,170,000

Total ($90/PD) $2,340,000

Net Income $210,000

Using the information in the table above, answer the following two questions.

1. What is the BREAK EVEN in patient days for this nursing home, assuming no profit is required?

STEP 1: Calculate the AVERAGE NET REVENUE

• Average Net Income = 2,550,000/26,000 =98.0769

STEP 2: Calculate the BREAK-EVEN VOLUME IN UNITS

• Break-even volume in units = Fixed Cost 1,170,000/

Price - Variable Costs per PD

2. If volume goes up 10 percent to 28,600 patient days and payer mix is unchanged, what will net income be?

You must have the following information to calculate the NEW net income:

• Average Net Revenue per patient day (calculated in #1 above)
• Variable Cost per patient day (amount listed in table above)
• Contribution Margin per patient day (Avg Net Revenue - Variable Cost = CM)

STEP 1: Calculate your Total Contribution Margin (Change in units x CM)

STEP 2: Calculate your NEW net income (Original Net Income + Total CM from Additional Patient Days)