BREAK-EVEN EXECUTIVE SUMMARY
SUBJECT: ESTABLISHMENT OF A NEW WALK-IN CLINIC
For the achievement of the objectives and goals of a new walk-in clinic, the primary and most effective factor to be considered by the management is the break-even point where the clinic is expected to start generating profits.
The Break-even point stage in a business is an essential factor in a business entity where one can determine the stage at which the revenues equals costs. Enabling the management to evaluate their costs, ranging from labor, rent to materials, and the firm’s pricing structure.
Break-even analysis is essential in determining the number of units that a business entity has to sell to avoid losses. The calculations expect the firm to evaluate the variable costs, selling price, and fixed costs (Chapman et al., 2017). Having determined the values, it becomes easy for the management to calculate the break-even points in units and sales value.
Significance:
Budgeting and developing standards
Make back the initial investment graphs, and computation is utilized for the planning process since the business realizes precisely what number of units should be sold to equal the initial investment. Additionally, the organization is likewise mindful of the benefits the organization will have the option to procure at different focuses, which can be adequately delineated on a basic make back the initial investment graph (Catanzaro, 2016). This can assist businesses with setting practical, feasible focuses for themselves.
Margin of safety
An instrument that supplements make back the initial investment investigation since these two devices are interrelated. This idea is utilized when a significant extent of deals are probably going to decrease or in time of downturn or financial turndown. Administrators can more readily settle on better creation and deals choice on the off chance that they know the edge of security for a specific item or administration (Catanzaro, 2016).
Determining the Break-even point
To figure out the break-even point dependent on units, divide fixed expenses by the income per unit short of the variable expense per unit. The fixed expenses are those that don’t change any make a difference in what several units are sold. The income is the cost for which you’re selling the item less the variable costs, similar to work and materials.
Evaluation of break-even point using the projected values
1)
Total Revenue 400,000 Variable cost 60,000
Margin 340,000 Fixed cost 275,500
Total fixed cost =Wages +Rent +Depreciation + Utilities
=$220,000+$5,000+ $30,000+ $2,500
=$257,500
Total Variable cost =Administrative supplies+Medical supplies
=$50,000+$10,000
=$60,000
Total Revenue
=$40*10,000 visits
=$400,000
Contribution margin=Total Revenue-Variable cost
=$400,000-$60,000
=$340,000
Profit = Contribution margin-Fixed cost
=$340,000-257,500
=$82,500
2) Solution where the clinic projected 7,574 visits
Profit=Total Revenue-Total Fixed Cost-Total Variable Cost
= ($40*No.of projected visits)-(6*No.of projected visits)-257,500
= (34*No.of projected visits)-257,500
Determining breakeven:
(34*No.of visits)-257,500=0
Number of visitation = 257,500/34
=7,574
3) Scenario where the clinic receives 11,775 visits
Solution
Pretax profit =100,000/ (1-0.3)
=100,000/0.7
=142,857.14
Pretax profit
= Total Revenue –Total Fixed Cost-Total Variable Cost
= ($40*number of visits)-(6*number of visits)-257,500-142,857.14
= (34*number of visits)-257,500-142,857.14
= (34*number of visits)-400,357.14
Break-even point
= (34*number of visits)-400,357.14=0
Number of visits =400,357.14/34
=11,775
Reference
Chapman, L. W., Ferris, K., & Zachary, C. (2017). Utilizing break-even analysis in a competitive laser market. Lasers in Surgery and Medicine, 50(1), 10–11. https://doi.org/10.1002/lsm.22753
Catanzaro, T. E. (2016). Break-Even Analysis. Journal of Global Economics, 4(2). https://doi.org/10.4172/2375-4389.1000190