Assignment:
The information in the table below applies to the following two questions.
Your nursing home defines output as a patient day. Its present volume is 26,000 patient days. The average cost per day is $90.00. Present revenues and costs are presented below:
Revenues:
Charge Patients (6,000 Patient Days) 750,000
Fixed-PricePatients (20,000 Patient Days) 1,800,000
Total Net revenues 2,550,000
Costs:
Fixed Costs 1,170,000
Variable Costs ($45/PD) 1,170,000
Total ($90/PD) Net Income 2,340,000
Net Income 210,000
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.
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 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
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 = ?
REVIEW the Adobe Connect Financial Video on Break-Even https://online.adobeconnect.com/p9igvawtn1e/ and Contribution Margin https://online.adobeconnect.com/p5u91gvf0c1/ and the Break-Even and Contribution Margin Transcript prior to completing the Assignment.