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Fiesr we will calculate the contribution margin ratio as below:
Total variable cost per discharge = $390 + $10 = $400 per discharge
Reimbursement rate = $1000 per discharge
Contribution margin ratio = (Reimbursement rate per discharge - Variable cost per discharge) / Reimbursement rate per discharge
Putting the values in the above formula, we get,
Contribution margin ratio = ($1000 - $400) / $1000
Contribution margin ratio = $600 / $1000 = 0.6
Now, we will calculate Break even volume as per below:
Break even volume = Fixed cost / Contribution margin ratio
Break even volume = $4200000 / 0.6 = $7000000
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