Hospital Supply Case Study

In order to calculate the breakeven point, we use the following equation and budget data:

Although the financial goal is to create profit, we need to calculate the breakeven point to get started.

5. Determine the necessary sales in unit and dollars to break-even or attain desired profit using the break-even formula.

Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.

To find the break-even point for napkins, you use the same formula. The fixed cost is still $420,000.00. The selling price of napkins is $7.00. The variable cost is $4.50. $7.00 minus $4.50 is $2.50. So then you take $420,000.00 and divide it by $2.50 to find the breaking point of $168,000.00. The company will have to sell $168,000.00 to break even in sales. The margin for safety for napkins is -$48,000.00. This is found by subtracting the actual or expected cost of $120,000.00 by the break-even point of $168,000.00. You can cut sales by $48,000.00 and not sustain a loss.

Because each product has a different contribution margin percentage, the volume required for each break-even point would be different and will not add up to the company’s overall break-even volume of 1,100,000 units; the overall break-even volume assumes that there is only one contribution margin percentage which is :

Shouldice Hospital is one where only external abdominal hernias are operated. The hospital has a unique “technique” for this which was developed by Dr.Earle Shouldice, the founder of the hospital. The hospital with its low cost solution, properly routine tasks, facilities for the patients and their visitors, high quality service, and best in industry doctors and staff had a competitive edge. The Shouldice Hospital in itself is not just a curing centre but a holistic experience for its patients, doctors, nurses and supporting staff alike.

Break even analysis is reliable as it is made from the budget and it gives a financial structure to the business. The data used for break-even, the business try to make the data as accurate as possible. They make this data depending on the previous year’s financial report. That’s why break-even is reliable to estimate current year’s results. In a short run, break-even analysis can be accurate.

This question gives students an opportunity to exercise their ability to interpret break-even analyses. Key teaching points should include explaining the preparation of a break-even chart, the interpretation of the break-even volume (938,799 hectoliters [HL]), and the comparison of the break-even volume to the current volume (1,173,000 HL). Another key point is that the chart in case Exhibit 5 is relevant only for the current cost structure of the company—if variable costs increase or the plant expansion is approved, the break-even volume will rise. Finally, students should be aided in understanding that “break-even” refers to operating profit, not free cash flow. The typical use of the break-even chart ignores taxes, investments, and the depreciation tax shield.

Break-even point analysis is a measurement system that calculates the margin of safety by comparing the amount of revenues or units that must be sold to cover fixed and variable costs associated with making the sales. In other words, it’s a way to calculate when a project will be profitable by equating its total revenues with its total expenses. There are several different uses for the equation, but all of them deal with managerial accounting and cost management (Break-Even Point, n.d.)

Question 4: Calculate each of the three products’ break even points using the data. Why is the sum of these three volumes not equal to the 1,100,000 unit’s aggregate break-even volume?

Breakeven = fixed cost/margin = total dollar fixed costs/ unit selling price –unit variable costs

A company's break-even point is the amount of sales or revenues that it must generate in order to equal its expenses. In other words, it is the point at which the company neither makes a profit nor suffers a loss. Calculating the break-even point (through break-even analysis) can provide a simple, yet powerful quantitative tool for managers. In its simplest form, break-even analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service. Managers can use this information in making a wide range of business decisions, including setting prices, preparing competitive bids, and applying for loans.

This equation is solved for the sales volume in units. c. In the graphical approach, sales revenue and total expenses are graphed. The break-even point occurs at the intersection of the total revenue and total expense lines. 8-2 The term unit contribution margin refers to the contribution that

1.Identify the sources of internal and external data for all three (3) types of customers.