Using the data below, answering the following questions: &
Using the data below, answering the following questions:
Fixed costs $12,500,000
Variable cost/day $350
Charge (rev)/day $1,200
Inpatient days 16,000
- Construct the hospital's base case projected P&L statement
- What is the hospital's breakeven point (volume / patient days needed to breakeven)?
- What is the economic breakeven (volume required) to provide a profit of $1,000,000?
- What is the total contribution margin if volume decreases by 20%?
Based on the scenario in d., if fixed costs remain the same, what is the hospital's profit or loss?
Homework Answers
A.Construct the hospital's base case projected P&L statement :
Revenue - Variable Cost = Contribution .
Contribution- Fixed Cost = Profit
| Total Revenue | 16000*1200 | 19200000 |
| Total Variable Cost | 16000*350 | 5600000 |
| Contribution Margin | 16000*(1200-350) | 13600000 |
| Fixed Cost | 12500000 | |
| Profit | 1100000 |
B.What is the hospital's breakeven point (volume / patient days needed to breakeven)?
Break Even Point = Fixed costs / ( selling price – variable costs )
12500000/(1200-350) = 14705.88 Inpatient Days.
C.What is the economic breakeven (volume required) to provide a profit of $1,000,000?
The formula for calculation of output to earn a certain amount of profit is as follows :
(Fixed Cost + Desired Profit) / Contribution Per Unit
(12500000+1000000) / (1200-350) = 15882.35 Inpatient Days.
D.What is the total contribution margin if volume decreases by 20%?
Here Inpatient Days is Volume . i.e. 16000 . Volume decreases by 20% i. e 3200
Volume = 16000-3200 = 12800 Inpatient Days
| Total Revenue | 12800*1200 | 15360000 |
| Total Variable Cost | 12800*350 | 4480000 |
| Contribution Margin | 12800*(1200-350) | 10880000 |
Based on the scenario in d., if fixed costs remain the same, what is the hospital's profit or loss?
Profit / Loss = Contribution Margin - Fixed Cost
10880000-12500000 = -1620000.
i.e. Loss is 1620000.
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