Question

The superintendent of a large hospital is evaluating the possible automation of one of its radiographic procedures. Currently the yearly fixed cost of the procedure is R100,000 and the variable cost is R500 per test. If the procedure is automated, the fixed cost will rise i R216,000 per year, but the variable cost will drop to R100 per test. In order to evaluate whether automation is an option, the superintendent decides to evaluate the point at which the two options will break-even: At which number of tests per year will the two options break-even?:

Answer 1

let breakeven be n, then as per given condition

216000 + 100*n = 100000 + 500 * n

500*n - 100*n = 216000 - 100000

400*n = 116000

n = 116000 / 400 = 290 tests