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# BHS427 Module 2 Case (Essay Sample)

Instructions:

Conduct Break-Even Analysis in the following scenarios:
R Squared is a mobile diagnostic imaging company that performs MRI scans of patients at hospitals and clinics that cannot afford their own scanners. General Hospital has contacted R Squared regarding a contract for services. Accountants at R Squared have calculated the variable cost per scan at $1,200. The fixed cost per month is $90,000 (Cost of MRI lease payments and service). The accepted price charged in the community for an MRI scan is $2,100.
R Squared must charge General Hospital $200 less than the community price in order to get the contract.
1. Approximately how many patients must R Squared scan at General Hospital to break even for a given month?
2. Approximately how many patients will General Hospital have to guarantee for R Squared to make a monthly profit of $10,000?
3. Assuming that General Hospital can guarantee 125 patients per month, will R squared accept the contract?
4. If not, what can General Hospital or R Squared do to reach an agreement?
General Hospital has an inpatient volume of 482 per month and an outpatient volume of 836 per month. General Hospital receives money from three categories of payers - 30% are Cost Payers and pay $1,800 per scan. 45% are Charge Payers and pay $1,200. The remainder are Fixed-price Payers who pay $1,500. Assuming variable and fixed costs are the same as the previous scenario:
5. Approximately how many patients will have to be scanned for General Hospital to make a profit of $20,000 per month?
source..

Content:

BHS427 MODULE 2 CASE

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(30 July 2011)

BHS427 Module 2 Case

1. The break-even point (BEP) is a point at the total cost and total revenue is equal. At BEP, the organization has neither incurred loss nor gained any profit (Levine, & Michele, 2008). Mathematically, the break-even point can be presented as

Total revenue (TR) = Total Cost (TC)

If P represents the unit sales price and X, the unit sales then P * X is equal to total revenue. In addition, if TFC represents Total Fixed Cost and V to represent the Unit Variable Cost (Cafferky, & Wentworth, 2010). Then TVC + (V *X) is equal to total cost.

Therefore:

P *X = TFC + (V * X)

TFC =P * X – (V * X)

TFC = (P -V) * X

X =

TFC = 90 000

Price per unit = 2100-200

= 1900

BEP= Total Fixed Costs / (selling price - variable costs)

BEP = 90000/ (1900 - 1200)

BEP= 128.6

BEP = 127patients

R Squared must scan approximately 127 patients at the General Hospital to break even for any given month.

2. For General Hospital to guarantee R Squared that, it will make a monthly profit of $10,000,

This can be shown by calculating BEP at that profit where the required profit per month became an additional fixed cost. Therefore;

Total Fixed cost will be = 90000 + 10000 = 100000

Thus, BEP= Total fixed costs / contribution margin

BEP = 100000/ (1900-1200)

BEP= 142.9

Therefore, BEP = 143 patients. Hence, for General Hospit...

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