Healthcare Financial Management And Economics Week 8 Assignm

Healthcare Financial Management And Economicsweek 8 Assignment 2 Pac

Healthcare Financial Management and Economics Week 8 Assignment 2 — Pacific Imaging Center Assignment 2: Break-Even Point Formulas Before making hiring or purchasing decisions, healthcare organizations must consider whether the decision is financially profitable. By calculating break-even points, organizations are able to examine actual costs and make more sound financial decisions. For this Assignment, you use data from the Pacific Imaging Center and calculate break-even points. Scenario: Pacific Imaging Center is a small imaging center with two analogue film or screen units. As the director of the center, Juanita Hernandez has been asked to determine if the current staffing is correct for her place or should she add another technologist.

She currently uses 2 mammography units, 2 technologists, and 1 aide. She has analyzed the current costs and determined the following: Reimbursement per screen $75 Equipment costs per month ($800 per machine) $1,600 Technologists costs per mammography $20 Technologists aide per mammography $4 Variable cost per mammography $10 Equipment maintenance per month per machine ($350 per machine) $700 To prepare for the Assignment: Examine the Pacific Imaging Center scenario. Reflect on how you will use the provided financial data to calculate break-even points. Refer to Chapter 9 of Financial Management of Health Care Organizations: An Introduction to Fundamental Tools, Concepts and Applications for additional guidance.

The Assignment: Given the above information, use the “Week 8 Assignment 2 Break Even Excel Template» to answer these items as a Department : A. Solve for monthly volume to break even. B. Solve for monthly volume needed to break even at desired $5,000 per month profit level. C. Solve for volume needed to break even at new reimbursement of $112 per screen and no profit. D. Solve for volume needed to break even with an additional technologist. Your Assignment is due by Day 7 of Week 8.

Paper For Above instruction

The Pacific Imaging Center, a small but essential healthcare facility, faces critical financial decisions that necessitate precise analysis of its cost structure and revenue streams. Calculating the break-even point—where total revenues equal total costs—is fundamental in determining whether current or proposed operational levels are financially sustainable. This paper elucidates the steps involved in computing the four key break-even metrics for the center, utilizing the data provided and applying industry-standard formulas.

Understanding the Context

The center operates two mammography units, generating income from each screen at a reimbursement rate of $75 per mammogram. The fixed costs comprise equipment costs ($1,600 monthly for two units) and equipment maintenance ($700 monthly), totaling $2,300. Variable costs include technologist costs ($20 per mammogram), aide costs ($4 per mammogram), and additional variable costs ($10 per mammogram). These variable costs sum to $34 per mammogram. Calculating the total fixed costs and variable costs per unit enables us to determine the volume of mammograms needed to break even—an essential metric for staffing, equipment, and capacity planning.

Calculating the Break-Even Point

The fundamental formula for the break-even point in units is:

Break-Even Units (X) = Total Fixed Costs / (Reimbursement per mammogram – Variable cost per mammogram)

Where:

  • Total Fixed Costs = Equipment costs + Equipment maintenance = $1,600 + $700 = $2,300
  • Reimbursement per mammogram = $75
  • Variable cost per mammogram = $34 ($20 technologist + $4 aide + $10 variable costs)

Substituting values:

X = $2,300 / ($75 – $34) = $2,300 / $41 ≈ 56.1 mammograms

Thus, approximately 57 mammograms per month are needed to break even under current conditions. This corresponds to the monthly volume required to cover fixed and variable costs, ensuring the center’s operational sustainability.

Part A: Monthly Volume to Break Even

The calculation yields approximately 57 mammograms per month. This indicates that sending this minimum number of patients through the center will cover all operating costs, with no profit or loss.

Part B: Monthly Volume for $5,000 Profit

To determine the volume needed to achieve a specific profit goal, the formula adjusts to include targeted profit:

X = (Total Fixed Costs + Desired Profit) / (Reimbursement per mammogram – Variable cost per mammogram)

Where:

  • Desired profit (TF) = $5,000

Calculating:

X = ($2,300 + $5,000) / ($75 – $34) = $7,300 / $41 ≈ 178.0 mammograms

The center must perform approximately 178 mammograms per month to meet a $5,000 profit goal, illustrating the scale of activity needed for profitability.

Part C: New Reimbursement of $112 with No Profit

If reimbursement per mammogram increases to $112, the new calculation adjusts accordingly:

X = Total Fixed Costs / (New reimbursement – Variable cost)

Where:

  • Reimbursement = $112

Calculation:

X = $2,300 / ($112 – $34) = $2,300 / $78 ≈ 29.5 mammograms

Approximately 30 mammograms per month are needed to break even at the higher reimbursement rate, significantly reducing the required volume compared to current rates.

Part D: Additional Technologist and Impact on Break-Even Volume

Adding another technologist impacts variable costs and capacity. Assuming the additional technologist increases technologist costs proportionally and helps increase capacity, the fixed costs may rise with additional staffing or equipment needs.

If we assume the addition of a technologist incurs an additional monthly personnel cost of $3,000 (hypothetical for this analysis), the total fixed costs become:

Total Fixed Costs = Original Fixed Costs + Additional Staff Cost = $2,300 + $3,000 = $5,300

Using original reimbursement ($75) and variable costs ($34):

X = $5,300 / ($75 – $34) = $5,300 / $41 ≈ 129.3 mammograms

Adding another technologist increases the break-even volume to approximately 130 mammograms per month, illustrating the impact of staffing on financial thresholds and operational planning.

Conclusion

Accurate calculation of the break-even point and related metrics enables the Pacific Imaging Center to make informed decisions regarding staffing, capacity, and pricing strategies. The adjustments in reimbursement, staffing, and profit targets significantly influence the required patient throughput. These calculations serve as vital tools for strategic planning, ensuring the facility's financial sustainability while maintaining quality care.

References

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