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Question 1

Is In and Out clinic above or below its break-even volume?

Breakeven volume is the quantity that an organization or a company requires before they start making profits; thus, they can only cater to the production costs. At this point, the revenue = expenses.  It is below since the revenue does not equal the expenses, i.e., $20,000<$25,000

Question 2

What is the average revenue per patient?

Revenue is the cash inflows generated from the operations of a business entity (Nowicki, 2018). Health care facilities get their main revenue from billing patients, government and, private donations.

The Average revenue per patient=Annual revenue/Number of patients

=$20,000/100

=$200

Question 3

What is the average variable cost per patient?

Cost is the amount of money for conducting a business, and can also be referred to as expenses which, are incurred during productivity (Louis 2017). As the name suggests, costs are divided into two; fixed costs, which do not change despite the production levels. These costs will be incurred even when production is not going on. For example, rent of the premises is a fixed expense. The other type of cost is a variable cost that changes depending on the production levels. For instance, the cost of treating five patients is higher than the cost of treating one patient. Given variable expenses of $10,000

Average variable cost= Total variable cost/ number of patients

= $10,000/100

=$100

Question 4

What is the contribution margin per patient?

The contribution margin is the difference between the revenue per unit of production and the variable cost per unit (Loius,2017). Fixed costs are not included in this calculation since they do not change over the production process. Contributions are important in making decisions on whether to increase productivity or not (Gallo, 2017).

Contribution margin=revenue per patient- variable costs per patient

$200-$100

=$100

Question 5

What is the likely breakeven volume for the patients?

As mentioned earlier, breakeven volume is the number of units that, when sold, can cover the cost of production.

Total revenue-variable cost-fixed cost=profits

But at breakeven point:  Total revenue-variable cost- fixed cost=0

Therefore: where x=volume

(200 *x) -(100*x)-$15,000=0

200x-100x-$15,000=0

100x=$15,000

x=150

Thus, the break-even volume would be 150 patients.

 

 

 

 

 

 

 

 

 

References

Gallo, A. (2017). Contribution margin: What it is, how to calculate it, and why you need it. Harvard Business Review, 1-3.

Gapenski, L. C. (2017). Healthcare Finance an introduction to accounting and Financial Management (5th ed.). Health Administration Press.

Nowicki, M. (2018). Introduction to the financial management of healthcare organizations. Health Administration Press, Chicago, Illinois.