You are the director of an ambulatory surgery center. The center is a joint vent

Question

You are the director of an ambulatory surgery center. The center is a joint venture with 3 area surgeons.

Fixed Cost per year is $5,200,000

Average Price per Case is $2,200

Average Variable Cost per case is $1,425

Contribution=average price-Average variable cost

=(2200-1425)=$77

Cases for breakeven= Fixed costs/Contribution

=(5,200,000/775)=6709.68

According to the terms of the joint venture, each surgeon is to receive a $500,000 bonus on December 31, 2017. Recalculate the breakeven volume that will be required to ensure the bonus can be paid.

Explanation / Answer

Cases for breakeven= Fixed costs/Contribution

New fixed cost = 5200000 + 3 x 500000 = 6700000

New breakeven = 6700000/775 = 8645.16

So the new bereakeven case will increase to 8645.16 since fixed cost has been increased for current year by 1500000.

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