COST CONCEPTS

Cost Concepts (Assignment 3b)



Cost Concepts (assignment 3b)

Break-Even Analysis

Variable cost per scan = $ 1200

Fixed cost per month = $ 90000

Community Price = $ 2100.

R Squared price charge = $ 1900

1.  Approximately how many patients must R Squared scan at General Hospital to break even for a given month?  

Break-even Equation; Sales (per scan) = Variable expenses (per scan) + Fixed expenses + Profit

Where n = number of patients1900n = 1200n + 90000 + 01900n - 1200n = 90000700n = 90,000n = 90000/700n = 128.57n = 129 R Squared should scan 129 patients at General Hospital to achieve break even for the given month.

2.  Approximately how many patients will General Hospital have to guarantee for R Squared to make a monthly profit of $10,000?

Profit = Income - Expense$10,000 = 1,900n - (1,200n + 90,000) $10,000 = 1,900n - 1,200n - 90,0000 = 700n - 90,000 - 10,0000 = 700n - 100,000700n = 100,000n = 100,000 / 700n = 142.86n = 143143 patients should be scanned at General Hospital to guarantee R Squared to make a profit of $10,000

3.  Assuming that General Hospital can guarantee 125 patients per month; will R squared accept the contract?

Profit = (1,900 x 125) - ((1,200 x 125) + 90,000)Profit = 237,500 - (150,000 + 90,000)Profit = 237,500 - 240,000Profit = -2,500 Loss = $2,500

R Squared will not accept the contract as it will make a loss of $2500.

4.  If not, what can General Hospital or R Squared do to reach an agreement?

R Squared would have to agree with General Hospital to charge a rate which would give them some profit but be under the community price. Or General hospital would have to guarantee a higher number of patients per month.

5.  Approximately how many patients will have to be scanned for General Hospital to make a profit of $20,000 per month?

Profit = Income - ExpenditureIncome = (1,800 x 0.30n) + (1,200 x 0.45n) + (1,500 x 0.25n)Income = 540n + 540n + 375nIncome = 1,455nExpenditure = 1,900nProfit = Income - ExpenditureProfit = 1,455n - 1,900nProfit = -445nLoss = 445nGeneral Hospital cannot make a profit as its income is less that their costs and will on average make a $445 loss on each patient.

Break-even point

The accountant must be conscious and aware of certain things that are necessary, such as water and air, not just a person who made ??the rights and obligations of the company that operates and is also not a person who demonstrates financial results reached by the organization. But the accountant thought and planning and control in addition to the above. And surprisingly, many people do not realize or understand the concept of break-even point, its importance and method of calculation is.

Break-even point

Break-even point defines what should be the volume of sales to break even venture to work, could cover all its costs, without receiving profit. In turn, both a change in revenue is growing earnings shows operating leverage (operational leverage). Break-even point is of great importance to the issue of ...