The break-even point for a business is the point at which you are not earning a

Question

The break-even point for a business is the point at which you are not earning a profit nor incurring a loss. As a financial manager, it is important to know what this point is because an increase in revenue or sales may not necessarily mean an increase in profit. You have to understand the variable and fixed cost behavior related to your business.

I am eager to start my health care business in Eye care sector. Where I will be serving the community for affordable eye care treatments. My team will be comprising of best doctors which will assist, guide and take care of the society in eye care sector in all the possible ways. My team will be giving world class affordable service in the region. My goal is to serve the community. Once a year basic eye care education and treatment will be free for the people who can afford it. This will help in marketing my eye care clinic too. I will be using digital and traditional marketing tools to market my eye care center. I would like to locate the business wherein people can reach easily and can have sufficient parking space. My team will be having HR, Financial and Marketing team to help me making wise decisions for future and to manage the organization in the defined goal. Identify the type of organization it is or will be (sole proprietorship, partnership, or corporation) and why this structure is appropriate for your business. Be sure to give your health care business a name. I will be start my health care business initially as sole proprietor as I will be focusing on limited market initially. Once it is being proved that the model is working, then during the time of expansion, I may consider other models like partnership or forming a corporation. I would like to be the sole decision maker my company and the target market is also small; hence I will be using sole proprietorship mode.

I will be naming it as Barnaby Eye Care. Explain whether it is a for-profit or not-for-profit business and why you chose that type of organization structure. It will be a for profit business only although pricing and services will be competitive. Sooner or later expansion mode will be picture wherein I can go for franchise model even, hence from day one it will be a for profit organization certainly by using social responsibilities means too. While starting my goal is to serve the community in better way and I would be growing my business to the state and then to country, hence as a sole proprietor I would like to develop my own culture when comes to health care practices. Discuss the mission of the business, i.e., the purpose the business serves. To cater the importance of Eye care for the community and helping the society by giving affordable and reachable treatments Describe the target market the organization will serve. All age group and gender as eye care is needed to everyone. Middle class and above in geographical territory will be targeted initially to give services. Social activities and free basic checkups for Lower middle class once a year which will further help in marketing too. Explain your role as the financial manager and identify how the finance department fits into the organizational structure. To use the money with proper investments, maintain accounts of the organization, Taxation compliance, to make proper investments of the profit to increase the same, Loans and fund raising, Accounting

Identify any challenges (trends, laws, regulations, industry standards, etc.) facing your business today that may impact its financial viability. Although there are not many challenges in the health care system and if certain are there they can be solved. Apart from this the major challenge is rising land costs and initial investments for machinery costs, high machinery costs, purchasing or leasing land.

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.

Explanation / Answer

Answer 1:

Fluctuation of Break Even Point:

The breakeven point explain us how many units one must sell to cover fixed and variable production costs. The breakeven point fluctuates in response to sales demands and fluctuations in the production costs. We calculate the breakeven point by adding total variable and fixed costs together and dividing that amount by the number of units produced. Recalculating the breakeven point reveals if your costs have increased or decreased beyond the normal range. We can analyze accounting information to see what factors are responsible for increased or decreased breakeven point. The factors are listed below.

1.            Breakeven Point Factors

Breakeven point is directly proportional to how variable costs and fixed costs change. The direct materials and direct labor are variable costs that fluctuate with product demand. Fixed costs are called fixed because they do not change over a specific time. For example, your insurance premiums remain the same while the policy is in force but may increase when you renew coverage. A production step fixed cost changes when increased production volume pushes the fixed costs out of their normal range to a new level.

2.            Increased Customer Sales

The breakeven point increases or decreased when we manufacture more of our products to meet additional customer demand. For example, the breakeven point to produce 30,000 items with total production costs of $40,000 is $1.34 per unit. When you produce 40,000 units with production costs of $60,000, your breakeven point is $1.50 per unit. Your breakeven point increases by $0.16 to reflect the addition production costs.

3.            Increased Production Costs

If our sales remain the same but your variable or fixed costs increase, the breakeven point will reflect the additional expense. Our variable costs go up when the suppliers raise the price of your direct materials and supplies or when we give your employees a cost-of-living increase. Higher fixed costs also increase your breakeven point. For example, when the electric company raises the rates, the step fixed costs go up. Our net income decreases unless we lower our production costs or increase your item’s selling price.

4.            Labor Rework Expense

Production line errors increases labor costs and breakeven point without generating additional revenue. For example, say you sell each unit for $5. The breakeven point for manufacturing 10,000 units with $20,000 of production cost is $2 per unit. Your profit is $5 minus $2, or $3 per unit. Say it costs an additional $5,000 of direct labor to rework defective units. Now the breakeven point for 10,000 units with $25,000 of production costs is $2.50. At the $5 selling price, your profit drops from $3 per unit to $2.50 per unit.

Answer 2:

Monitoring break Even point in Health Care business is important because it

Note: I would like to have your opinion and if you have any doubt in specific. I will be glad to help you.

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