# Wk 6 a.h 531 the break-even equation and profit calculation

Submit written responses to these questions. 1.What are the formulas for: ◦The basis break-even equation ◦The basis breakeven equation expanded to include indirect costs and desired profit?  2.Explain the relationship between step-five costs and the relevant range. 3.Based on the product margin, when is it in the best interests of an organization to continue or drop a service? 4.Laurie Vaden is a nurse practitioner with her own practice. She has developed contracts with several large employers to perform routine physical, fitness for duty exams, and initial screening of on-the-job injuries. She currently sees 150 per month, charging 450 per visit. Her total costs are \$7,500, of which \$1,500 is for supplies. She has decided that she needs to increase profit, so she is considering raising her fee to \$65. She expects to lose 10 percent of her business to competitors that charge an average of 460 per visit. Determine her current and predicted: 1) revenues, 2) variable costs, and 3) total contribution margin. What do you recommend she do? Why? 5.Janet Gilbert is director of labs. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her costs of these contracts are \$10,000 of which \$7,000 are for supplies and items related to each test. She currently charges an average of \$10,00 per lab test. She is thinking of lowering her price by 20 percent in hopes of raising her current volume of 10,000 tests by 15 percent. Determine her current and predicted: 1) revenues, 2) variable costs, 3) total contribution margin, and 4) net income. What do you recommend she do? Why? 6.Shady Rest Nursing Home has 100 private pay residents. The administrator is concerned about balancing the ratio its private pay to non-private pay patients. Non-private pay sources reimburse an average of \$100 per day whereas private pay residents pay average 100 percent of full daily charges. The administrator estimates that variable cost per resident per day is \$25 for supplies, food, and contracted services and annual fixed costs are \$4,562,500. ◦What is the daily contribution margin of each non-private pay resident? ◦If 25 percent of the residents are non-private pay, what will shady Rest charge the private pay patients in order to break even? ◦What if non-private pay payors cover 50 percent of the residents?  7.The owner of Shady Rest Nursing Home insists that the facility earn \$80,000 in annual profits. How much must the administrator raise the per day charge for the privately insured residents if 25 percent of the residents are covered by non-private pay payors?

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