Break-Even Analysis Assignment

Break-Even Analysis Assignment
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1. Identify the variable and fixed costs associated with your selected health care business. Discuss how these costs are affected by changes in productivity levels. Determine what steps you could take to reduce at least two of those costs. (15 points)

A variable cost is a cost that changes in relation to deviations. In the diabetes clinic I am creating, depending on the volume of patients, items include needles, cotton balls, disinfectant, urine specimen cups and lab equipment related to diabetic blood and urine testing would be considered variable costs. Other equipment includes eye examination tools, scales and blood pressure cuffs. To reduce variable costs, I will not purchase inventory we do

not need now. Some months we will use more cotton balls if more patients are seen in the clinic so this cost may vary. I would try to purchase in bulk so we can use items we need now and save some for a later time.

A fixed cost is a cost that does not change over the short-term, even if a business experiences changes in its sales volume or other activity levels.

A rent payment for the office space is a fixed cost because, it does not matter how many patients are seen in the clinic; we pay the same rent amount each month despite the volume of patients. and a salary payment in exchange for two weeks of services by an employee. (I will have 3 MA’s, an office manager and 1 provider) other fixed costs would include computers, phones and medication storage. The high fixed costs emphasize the importance of adjusting fixed costs to patient consumption to maintain efficiency. To be able to reduce fixed costs, I would have my Medical assistants employed part-time and be open to interns. In the beginning, I am not sure how many patients we will have and do not need to be always be fully staffed. But, if we have an increase in-patients, I will have staff coverage available

2. Review the Break-Even analysis tool. Using the calculator on this website, calculate the break-even point for your chosen health care business. Save the document with term Break_FirstName. Save it as Portable Document Format (.pdf). (10 points)

3. Explain how the break-even point can fluctuate. As the financial manager of your health care business, discuss why it is important to monitor the break-even point. (5

pts)

Break-even point is where all costs and expenses are covered by the revenue/sales generated. When you know this figure, you can keep an eye on sales each week to know if you’re under or over the break-even point, and make important decisions from that. If you do not know your break-even point you might over spend and not have enough money to cover your expenses. Your breakeven point depends on how your variable costs and fixed costs change. An increase in patients will create of use of more supplies increasing variable costs. Of course, a decrease in selling price will also increase the break-even point. Another reason for a change in the break-even point is a change in the mix of products or services delivered. If we have the same total number of anticipated unit sales, but a greater proportion of the units sold have a lower contribution margin, my business’ break-even point will increase.