The Break-Even Equation and Profit
Calculation
Submit written responses to these questions.
1.
What are the formulas for:
o The
basis break-even equation
o The
basis breakeven equation expanded to include indirect costs and desired profit?
Explain the relationship between
step-five costs and the relevant range.
Based on the product margin, when is it
in the best interests of an organization to continue or drop a service?
Laurie Vaden is a nurse practitioner
with her own practice. She has developed contracts with several large employers
to perform routine physical, fitness for duty exams, and initial screening of
on-the-job
injuries. She currently sees 150 per month,
charging 450 per visit. Her total costs are $7,500, of which $1,500 is for
supplies. She has decided that she needs to increase profit, so she is
considering raising her fee to $65. She expects to lose 10 percent of her
business to competitors that charge an average of 460 per visit. Determine her
current and predicted: 1) revenues, 2) variable costs, and 3) total
contribution margin. What do you recommend she do? Why?
Janet Gilbert is director of labs. She
has some extra capacity and has contracted with some small neighboring
hospitals to run some of their lab tests. She has recently had a study
conducted and has determined that her costs of these contracts are $10,000 of
which $7,000 are for supplies and items related to each test. She currently
charges an average of $10,00 per lab test. She is thinking of lowering her
price by 20 percent in hopes of raising her current volume of 10,000 tests by
15 percent. Determine her current and predicted: 1) revenues, 2) variable
costs, 3) total contribution margin, and 4) net income. What do you recommend
she do? Why?
Shady Rest Nursing Home has 100 private
pay residents. The administrator is concerned about balancing the ratio its
private pay to non-private pay patients. Non-private pay sources reimburse an
average of $100 per day whereas private pay residents pay average 100 percent
of full daily charges. The administrator estimates that variable cost per
resident per day is $25 for supplies, food, and contracted services and annual
fixed costs are $4,562,500.
o What
is the daily contribution margin of each non-private pay resident?
o If
25 percent of the residents are non-private pay, what will shady Rest charge
the private pay patients in order to break even?
o What
if non-private pay payors cover 50 percent of the residents?
The owner of Shady Rest Nursing Home
insists that the facility earn $80,000 in annual profits. How much must the
administrator raise the per day charge for the privately insured residents if
25 percent of the residents are covered by non-private pay payors?
Jermaine Byrant
Nicole Johnson
OVER
RATING
YEARS
