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Acc 561 Hc Individual Assignment 2 Week 3 Break-Even Analysis Getwell Clinics

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Acc Hc Individual Assignment 2 Week 3 Break-Even
Analysis Getwell Clinics
ACC/HC561
After receiving the information from Beach Street office of Getwell Clinics, the DRG
for three types of patients were reviewed to obtain the break-even analysis. Last
year data that was submitted to me was received. The data included the patient
volume proportions, average charges, average variable costs, and the amount of
specific fixed costs assigned to each DRG. Before going into the actual calculations
that was derived from the data, an explanation of the process would enable you to
develop a big picture and help you understand the process.
Break-even analysis is a formula that allows a company to know when the total sales
or revenues equal the total expenses. According to CITE, the breakeven analysis
technique provides managers with information regarding the financial viability of
proposed and existing programs and services.” At that point, no profit has been
made, nor any losses incurred. In considering the breakeven analysis, several types
of costs are associated with it. Fixed costs and variable costs are associated with the
breakeven analysis. It is very relevant to determining the value of the formula. Fixed
costs are costs that stay the same no matter how many items or services you sell or
render. However, variable costs and recurring costs that are consumed with each
item or service sold. In addition to the costs, the price is very vital too. The price that
the company is willing to charge for services rendered enables for calculations to be
made for possible revenues.
In any healthcare field, like Getwell Clinic, the focus of the breakeven analysis
concentrates on the number of treatments, visits, or patient-days. It is more feasible
for any healthcare provider to focus on the number of patients needed to break even.
When reviewing information to add a new service, the information should be
reviewed based on DRGs. In order for Getwell Clinic to break even, the business
owners must concentrate on covering all costs. The table listed below shows the
calculations of the breakeven points, in numbers of treatments, for each type of DRG
while using the weighted average contribution margin approach.

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Table 3-1
Getwell Clinic |
Calculations |
| | | | | | | | | | |
DRG | Proportion | Charge | Variable
Cost | Fixed
Cost | Break Even
Point | Weighted
Avg. Price | Weighted
Variable Cost | Needed to
Break Even | Contribution
Margin | Weighted Avg
Cont. Margin |
M | 50% | $ 1,700 | $ 1,000 | $ 500,000 | 714 | $ 850 | $ 500 | 1,036 | 41.2% | 20.6%
|
J | 30% | $ 2,600 | $ 1,200 | $ 280,000 | 200 | $ 780 | $ 360 | 622 | 53.8% | 16.2% |
P | 20% | $ 900 | $ 600 | $ 110,000 | 367 | $ 180 | $ 120 | 414 | 33.3% | 6.7% |
| | Joint Fixed Costs | $ 830,000 | | | | | | |
| 100% | | | $ 1,720,000 | | $ 1,810 | $ 980 | | | 43.4% |
| | | | | | | | | | |
Q= | 2,072 | | | | | | | | | |
DRG J must be promoted in an advertising program with the office having excess
capacity. The volume of patients is 2072. Of that total, each DRG represents a
percentage of the volume of patients. Originally only 200 patients were needed to
breakeven. However, the volume has risen to 422 patients. The volume increase
drastically and the excess space will allow the clinic to serve the patients
comfortably. To promote DRG P would be when the office would be at the maximum
capacity in terms of available hours. The available hours are one hour at the
breakeven point. This would allow the patients to be treated in a good time limit

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without the access waiting. The support of allocating costs is so that all of the
elements related to cost to be shared with the incurred cost of the organization.
These allocated costs would be used by all of the areas that will utilize the rendered
services. This is another way to assign responsibility within the company.
References
Dun & Bradstreet, Inc., (2004). Understanding financial statements. Retrieved on
October 8, 2010 from
http://www.dnb.com/US/communities/credit/understanding_financials.asp
Finkler, S. A., Ward, D. M., & Baker, J. J. (2007). Essentials of cost accounting for
health care organizations (3rd ed.). Sudbury, MA: Jones and Bartlett.
Investopedia. (n.d.). Current Ratio. Retrieved from
http://www.investopedia.com/terms/c/currentratio.asp
The University of Texas at San Antonio. (n.d). Financial Statement
Analysis. Retrieved from
http://faculty.business.utsa.edu/kfairchild/classes/BCCB/BCCBRatios.doc

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