Question? Unsure how to plug the numbers from the break-even analysis below into
ID: 2657708 • Letter: Q
Question
Question?
Unsure how to plug the numbers from the break-even analysis below into the chart/figures.
Break even analysis:
If hospital pay $10.00 per test by having the tests done outside laboratory, and chargeOKs patient $20.00 per test. If array machine is acquired and test done in house, it will cost hospital 2.00 per for reagents. On average hospital performs five autoimmunity tests per day. That means hospital perform 1560 tests. To calculate break even analysis based on five years life array machine for autoimmunity tests per year:
R = Revenue; P = revenue received per units sold; F = fixed costs; S = numbers of units sold; V = variables cost; B = break even number units sold; T = total fixed cost.
“ Break even point (BEP) in units = fixed cost/sales price per units – variable cost per units. And BEP in dollars = sales price per units x BEP in units” ( Shaun,2018 par 4,5).
(BEP) units; =F/(P-V) therefore, $50,000/($20.00-$2.00) = $50,000/18
BEP = 2777.7 0r 27778 units
BEP in dollar = BEP x P= 2778 x $20.00 = $55,555.5556 or $55,556.
The hospital must reach the break even amount of $55,556.
In other hand, if BEP base on total cost of the equipment, then the total annual fixed cost would be $10,000. That will be $10,000/($20.-$2) = $10,000./18 = 556 tests.
The cost of array machine calibrate from Monday to Saturday excludes Sunday will be 365 days – 52 Sundays = 313 days, then to calibrate the machine require 1-hour technician time
Now 313 days x $15.00 (cost of technician per hr) = $4, 695
The total fixed cost is now $50,000 + $4,695 = $54,695.
Therefore, total fixed cost/profit per unit – variable cost per units [B= F/(P-V)]
=$54,695/$20-$2) = $54695/$18 = 3038.611 or 3,039 tests to break even cost.
Reference:
Shaun (2018). Break-Even Point Analysis | Formula | Calculator | … Retrieved July 26, 2018 from: https://www.myaccountingcourse.com/financial-ratios/break-even-point
Explanation / Answer
Net Contribution
based on the current test that are accomplished by the hospital the following can be calculated:
given this information,it is important to further understand the full scope of the acquisition by addressing the net gain from the addition of the array or maintaining the current off site laboratory.the figure below address the contribution of the new array opposed to the laboratory.
If the array were to be purchased it would contribute AND NET GAIN OF $2,480.00 per year based on current operations.Although an average of five tests are accomplished per day its is possible usage could rise.the machine is capable of running a maximum of 40 patient sampes and 20 different test on each samples over a two hours period.
tis would be a total of 800 test every two hours at maximum capacity. the hospital has a projected five tests a day built into this planning assessment. the $2 reagent cost reduced the $20 fee charged by the hospital to $18 atest.this will be addedd to show projections,and in cases it is not used there will be an additional profit to X,Y,Z tests will be conductedsix days a week at ten hoursfor tests because each tests takes approximately two hours to complete, and there is an hour for technician servicing times.
this calulates to 312 days a year at 518 a day multiplied by five to represent the expected volume.this equates to $28080 in revenue annually.the $10,000 depreciation fee will reduce the profit makingthe new projected profit $18,080
Also the technician fee of $15 an hour per day will further reduce the profit by$4,680 annually making the profit of the machine $13,400 annually.the machine costs $50,000.
upfront costs will be high but life span of the machine is short.However , over five year the projected net contribution of the machine is expected to be at mimimum $67000,If the machine were used to full capacity it could profit $224,640 annually, 312 days multiplied by 40 patients a day and one test each at $18.Taking away depreciation and technician fees would reduce the profit to around $210,000.
the projected base nrt contribution will be small but will save the X,Y,Z, Health care organization the $10 fee of sending a test to an outside lab.the organization is making a profit of $8/test by charging $20 -$2 reagent fee.The organization will be making a $12,480 profit compared to having to pay $10 to an outside agency. basicallythey keeping their $10 and adding an additional $8 profit in order costs of the machine.Purchasingthe machine would be a positive projected financial move for X,Y,Z to make.
Summary on decision
The obtainable proposal or the array acquisition provided brief but comprehensive information about the aquisition backgroung,drivers behind decision to include cost analysis with breakeven point ,current operations and revenue generated based off of medicare payouts.Given the information through this short analysis it can be determined that at current test performed averages,the hospital would benefit from the purchase of the array machine based on its five years life span.
calculation indicate that the acquisition would generate a revenue increase of $644.80.A depreciation schedule on the equipment will also benefit the hospital for tax purposes.
one problem area could be the play out of medicare benefits for these test performed.the hospital could lose money if only certain percentage were paid if the acquisition were made.The offsite lab would be the safest option for the hospital due to the cy=urrent operation if medicare payment were lower.the added benefits of the acquisition is also diagnosis time on test with the array.Test turn aroud would drop by two days performing test in house
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