Break-Even and Contribution Margin

timer Asked: Oct 17th, 2014

Question description

using this information, answer the following questionLP5.2

Revenues: Charge Patients (6,000 Patient Days) 750,000

Fixed-Price Patients (20,000 Patient Days) 1,800,000

Total Net Revenues 2,550,000


Fixed Costs 1,170,000 Variable Costs ($45/PD) 1,170,000

Total ($90/PD) Net Income 2,340,000

Net income 210,000

1. What is the breakeven point in patient days for this nursing home, assuming no profit is required? .

First you must determine the “price per patient days,” which is also called “price per case

The average net revenue = $Total Net Revenues / # of patient days = price per patient days

Using the price per patient days you can now proceed to the standard breakeven equation.

Break even volume in units = Fixed cost / (Price per patient day– Variable Cost) = # of patient days

2. If volume goes up 10 percent to 28,600 patient days and payer mix is unchanged, what will the net income be?

With this method simply start with the current net income and add to it the incremental income generated by the new patients. Of course, fixed costs will not change with the new patients. So, how much is earned on each marginal patient? That is just the contribution margin (CM) per patient day.

Average net revenue per patient day = (see calculation in previous problem)

Variable cost per patient day = ? (look closely at the provided information above for the variable cost, variable cost per patient day (PD) is given)

Contribution margin per patient day = ? (Price per patient day– Variable Cost)

Total contribution margin = Change in units × CM = ? (The change in units refers to the change in patient days from problem 1 and 2 above)

New net income = Original net income + total CM New net income = ?

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