Identify the variable and fixed costs associated with your selected health care
ID: 362086 • Letter: I
Question
Identify the variable and fixed costs associated with your selected health care business. Discuss how these costs are affected by changes in productivity levels. Determine what steps you could take to reduce at least two of those costs. (15 points) 1. Fixed Costs Rent Dental Supplies Utilities Average Dentist Salary Dental Assistants Annual $32,500 $24,000 $9,500 $140,000 $65,000 $32,750 Monthly $2,708 $2,000 $792 $11,667 $5,417 $2,729 Daily (for 30 days a month) $90 $67 $26 $389 $181 $91 Dental Hygienists Total $303,750 $25,313 $844 Variable Cost: Other (charts office supplies) $2,500 $208 $7 Daily Sales for Break Even = Daily Fixed Cost + Daily Variable Cost $844+$7 -$851 At Propose fee of $160 per patient, Number of minimum patients to be attended daily for break- even=$851/$160 =5.32= 6 patients Any additional patient seen after 6th patient adds to profits. For reducing fixed costs: (a) Rents and Salaries can be renegotiated as per the size and level of operations. Further, variable pays may be introduce based on the number of patients attended Rationing of supplies and use of utilities may be done for reducing fixed costs. (b) For reducing variable costs: (a) Number of patients may be increased by effective sales promotion and advertising, that will help reduce variable cost per patient and adds to profits.Explanation / Answer
There are three elements that determine the break even point (BEP). These are revenue, fixed cost and variable cost. If any of these elements vary, then BEP fluctuates. For given fixed cost, BEP can fluctuate if either the unit revenue or variable cost is changed.
As a financial manager, it is important to monitor the BEP, because it determines whether the financial model of the business is economically viable at the given output level and if not, then how much more the volume need to increase to make the business viable. It gives an idea about what should be the target volume of business, so that the costs are recovered and the business starts making profit.
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