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# Break-Even Analysis Calculations for Nurse Executive

### Break-Even Analysis Calculations for Nurse Executive

This case study for the break-even analysis is a clinic for the Outpatient Fertility, which is expected to have \$9,788,000 as a fixed cost. This amount includes the set-up costs, the cost to hire physicians in the specialty and even the costs to hire the anesthesiologists. Other values will be used to hire nurses and assist in paying salaries. Section of the cash will also be utilized to buy the technological equipment for the fertility as well as the miscellaneous items. The health center will also have \$500 as a variable cost for every visit of a patient. The clinic will operate from Monday to Saturday with expected 7,488 visits per year. The following charges will be levied on every visit of a patient according to the categories of the acuity: \$2000 for the simple patient (15%), \$6500 for the moderate patient (60%), and \$10000 for the complex patient (25%).

Contribution Margin per Patient

The clinic has three distinct classes of visits, which include Simple, Moderate, and Complex. The price for the visits is \$2,000, \$6,500, and \$10, 000 respectively. The variable costs for the visit are \$500. It can be used to cover the fixed cost. Thus, contribution margin per patient is obtained by Price per Visit minus Variable Costs

Contributing margin (CM) = Price (P) – Variable Expense per Patient (VC)

 Price (P) Variable Expense per patient (VC) Calculation of Contribution margin (CM=P-VC) Contribution margin (CM) Simple \$2,000 \$500 \$2,000-\$500 \$1,500 Moderate \$6,500 \$500 \$6,500-\$500 \$6,000 Complex \$10,000 \$500 \$10,000-\$500 \$9,500

The contribution margin per patient visit lets you know the cash that after will remain after the variable expenses are covered. Each patient visit under Simple category will contribute \$1,500 toward outpatient fertility clinic fixed cost of \$9,788,000 per visit while a patient under Moderate and Complex group provides \$6,000 and \$9,500 per visit toward the same respectively. After the \$9,788,000 of fixed cost has been covered the Clinic profit will increase by \$1,500, \$6,000 and \$9,500 per Simple, Moderate and Complex patient visit (Levin & Michele, 2010).

Total Weighted Average Contributing Margin

The weighted average contributing margin is the average amount of units used to cover the fixed cost. Contribution margin information can be used to calculate the weighted average contribution margin (WA). It is calculated as shown below;

Weighted-average contribution margin (WA) = (Contributing margin (CM) per category* percentage of the patient visit by category (X))/100

WA = (CM*X)/100

Its calculation is the multiplication of every contributing margin and patients’ percentage for the visit. The results are then summed up for a total average of the weighted contributing margin (TW). Therefore, overall weighted average contributing margin (TW) is the sum of the weighted average contributing margin for the individual categories calculated as shown (Levin & Michele, 2010).

Total weighted average contributing margin (TW) = ((CM 1 * X1))/100) + ((CM 2 * X2))/100) + ((CM 3 * X3))/100)

Where

CM 1 is the contributing margin for the Simple patient visit.

X1 is the percentage of the Simple patient visit.

CM 2 is the contributing margin for the Moderate patient visit.

X2 is the percentage of the Moderate patient visit.

CM 3 is the contributing margin for Complex patient visit.

X3 is the percentage of Complex patient visit.

The calculation of the total weighted average contribution margin is shown in table below;

 Contribution margin (CM) Percentage of visit (X) Calculation of Weighted-average contribution margin (WA) (WA=(CM*X)/100) Weighted-average contribution margin (WA) Simple \$1,500 15% (\$1,500*15%)/100 \$225 Moderate \$6,000 60% (\$6,000*60%)/100 \$3,600 Complex \$9,500 25% (\$9,500*25%)/100 \$2,375 Total weighted average contributing margin (TW) \$6,200

Therefore, per each visit each patient under Simple, Moderate, and Complex category will provide or contribute will provide and the average of \$225, \$3,600 and \$2,375 toward outpatient fertility clinic fixed cost of \$9,788,000 respectively. After the \$9,788,000 of fixed cost has been covered the Clinic profit will increase by an average of \$225, \$3,600 and \$2,375 per Simple, Moderate and Complex patient visit. Total weighted average contributing margin (TW) to be contributed to the fixed cost per visit is \$6,200.

The Break-Even Quantity (Number of Visits)

The Break-even volume for Outpatient Fertility Clinic is the number of visits needed to cover both Fixed and Variable cost of the clinic. It calculated by dividing the Total Fixed costs by the Total weighted average contribution price as shown below;

The Quantity of the break-even quantity (Q) = Fixed Expenses (FE)/ Total Weighted Expense per Visit (TW)

Q=FE/TW

Where FE= \$9,788,000 and TW= \$6,200

Therefore, Break-even quantity (Q) = \$9,788,000 / \$6,200

= \$1578.7 per visits

To cover the fixed and variable cost, the Clinic will need approximately \$1579 patient visits. The visit for each category can be calculated by multiplying the Break-even quantity by the percentage of patients that make up that type of visit as shown;

Category patient visits (CP) = break-even quantity (Q) * percentage of the category (X)

CP =Q*X

Therefore,

Simple category patient visits = \$1579*15/100

= \$236.9 visits

Moderate category patient visits = \$1579*60/100

= \$947.4 visits

Complex category patient visits = \$1579*25/100

= \$394.8 visits

Therefore, of the total approximate visits, \$237 visits, \$947 visits and \$394.8 visits would be Simple category visits (15%), Moderate category visits (60%) and multiple type visits (25%) respectively.

Patients Served Daily

To calculate the patients expected per day the calculated by dividing the number of patient visits expected per year by the number of days in the year as shown;

No. of Patient served per day (PS) = Expected visits per year (EX)/Number of Days per year (D)

Where EX = 7,488 visits and the D=312 days

Therefore,

No. of Patient served per day (PS) PS =7,488 visits /312 days

PS =24 patients per day

Therefore, approximately 24 patients are served every day. The patient served per day in each category can be calculated by multiplying the number of Patient served per day by the percentage of patients that make up that type of visit as shown (Brealey et al., 2013);

No. of Category patient per day = No. of Patient served per day (PS)* category percentage (X)

No. of Category patient per day =PS*X where PS = 24 patients

Therefore,

Simple category patient visits = 24 patients*15/100

= 3.6 patients per day

Moderate category patient visits = 24 patients *60/100

= 14.4 patients per day

Complex category patient visits = 24 patients*25/100

= 6 patients per day

Therefore, of the total approximate patients served per day, 4, 14 and 6 served per day would be Simple category visits (15%), Moderate category visits (60%) and multiple class visits (25%) respectively.

Days to the Break-Even

Days to the break even can be calculated by divided the breakeven quantity by number of patients served per day as shown;

Days to Breakeven (DB) = Break-Even Quantity (Q)/patients served per day

Where Break-Even Quantity = Q = \$1578.7 visits

Patients served per day = 24 days

Therefore, Days to Breakeven (DB) = \$1578.7 visits/24 days

DB = 65.7 days

Therefore, the clinic will have a break even on the 66th day and will be making a profit from 67th day.

Break-Even Analysis

According to Brealey et al. (2009), the point at which total revenue is equal to both the fixed cost and variable cost is referred to as Break-Even point. At that time, the organization does not make any profit rather it focuses on servicing its need. Therefore, break-even analysis helps determine sales needed to cover the variable and the fixed cost and sales volume after which the firm will start generating its profit. The break-even point for our Outpatient Fertility Clinic is \$1578.7 per visits which is likely to be achieved on the 66th day after the clinic operation. The clinic will have \$237 S, \$947 and \$394.8 Simple, Moderate and Complex category visits. On the 67th day, the clinic will start earning profit. The clinic will averagely serve 24 patients per day were 4, 14 and 6 patients served per day fall under Simple, Moderate, and Complex category respectively. The clinic has a total weighted average contribution margin of \$6,200.

The business is viable and profitable since the breakeven quantity can cover the variable costs of the hospital. Additionally, it is also able to service its expenses in a short period. From the analysis, the clinic has a total weighted contribution margin hence large profit margin.

Reference

Brealey R., Myers S., Marcus A., Maynes E., Mitra D. (2013). Fundamentals of Corporate Finance. McGraw-Hill Ryerson. USA. pp. 284

Levin David & Michele Boldrin (2010). Against Intellectual Monopoly. Cambridge University Press. p. 312

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