LP5.2 Financial Assignment: Break-Even and Contribution Margin This assignment will assess the…

LP5.2 Financial Assignment: Break-Even and Contribution Margin This assignment will assess the….

LP5.2 Financial Assignment: Break-Even and Contribution Margin

This assignment will assess the competency 4. Characterize the basic financial concepts used in strategic planning, cost identification, and resource allocation.

  • REVIEW the Adobe Connect Financial Video on Break-Even http://online.adobeconnect.com/p9igvawtn1e/ and Contribution Margin http://online.adobeconnect.com/p5u91gvf0c1/ and the Break-Even and Contribution Margin Transcript prior to completing the Assignment.

Directions: In a word document work out the financial problems using the information from the scenario provided. To earn full credit you must show all your calculations.

Please use a cover page including your name, date, instructor, and course.

Using the information from the LP5.2 Table, answer the following two questions:

  1. What is the breakeven point in patient days for this nursing home, assuming no profit is required? Please review chapter 14 for break-even analysis.

First you must determine the “price per patient days,” which is also called “price per case” in the textbook on page 328. Price per patient days is required for the Breakeven formula.

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.

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

  1. 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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LP5.2 Financial Assignment: Break-Even and Contribution Margin This assignment will assess the…

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