Key concept: Determining breakeven volume for a medical clinic.
Pam Smart is CEO of the two-year-old Speedy Medical Clinic (SMC). She needs your help because SMC has had a net loss during both years of its existence. Ms. Smart would like to know the likely breakeven volume for SMC so she can decide on the appropriate strategy for attracting additional patients.
Financial and operational data for the first two years follows:
Year 1 Year 2
Revenues $350,000 $420,000
Expenses
Building Depreciation $100,000 $100,000
Equipment depreciation $50,000 $50,000
Utilities $50,000 $53,000
Admin. Salaries $150,000 $155,000
Hourly Payroll $100,000 $120,000
Supplies $50,000 $60,000
Total Expenses $500,000 $538,000
Income Before Income Taxes –$150,000 –$118,000
Number of Patients 5,000 6,000
Assignment and Questions
1. Help Ms. Smart by calculating the breakeven volume to the nearest thousand patients.
2. What actions might Ms. Smart consider that might help Speedy Medical Clinic break even?
1
First of all we need to calculate per patient contribution as follow
| Year-1 | Year-1 EXp.per patient |
Year-2 | Year-2 EXp.per patient |
|
| Sales | 350,000 | 70 | 420,000 | 70 |
| Less: Variable Cost | ||||
| Utilities | 50,000 | 10 | 53000 | 9 |
| Admin Salary | 150,000 | 30 | 155000 | 26 |
| Hourly Payroll | 100,000 | 20 | 120,000 | 20 |
| Supplies | 50,000 | 10 | 60,000 | 10 |
| Contribution | 0 | 0 | 32,000 | 5 |
| Fixed Cost | ||||
| Building Depreciation | 100,000 | 100,000 | ||
| Equipment depreciation | 50,000 | 50,000 | ||
| Total Fixed Cost | 150,000 | 150,000 | ||
| Net profit | -150,000 | -118,000 |
Now breakeven point for both the year as follow
BEP
=Fixed cost / contribution per unit
As year -1 contribution is 0 so we find the BEP for year-2
BEP =150,000 /5
30,000 patient
Answer: the breakeven volume to the nearest thousand patient =30,000 patients
2
What actions might Ms. Smart consider that might help Speedy Medical Clinic break even?
Answer:
Here hospital should increase to serve more patient to reach at its Break Even point. It should implement various strategy to attract more and more patient
To attract more patient the hospital should take the following stapes
1
Policy of the hospital should be committed and fidelity to the patient
2
Hospital should try to provide all solutions with expert panels
3
Staff of the hospital should help patients implement medical advice even after they leave the clinic
4
For reaching at the BEP hospital management should try to reduce its variable cost Exp
