Question Assigned 12: Break Even Volume Monica Lee Administr
Question Assigned12 Break Even Volumemonica Lee Administrative Dire
Question Assigned 12. Break-even volume. Monica Lee, administrative director of Digital Imaging Center, has been asked by the practice members to see if it is feasible to add more staff to support the practice’s mammography service, which currently has 2 digital units and 2 technologists. She has compiled the following information : Reimbursement per mammography - $126.30 Equipment lease per month per machine - $10,450.00 Equipment maintenance per month per machine - $12,500.00 Technologist cost per mammography - $31.92 Technologist aide per mammography - $18.20 Variable cost per mammography - $15.00 a. What is the patient volume needed per month to cover fixed and variable costs? b. What is the patient volume needed per month if Digital Imaging Center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? c. If reimbursement decreases to $120 per screen, what is the patient volume needed per month to cover fixed and variable costs but not profit? d. If a new technologist aide is hired, what is the patient volume needed per month at the original reimbursement rate to cover costs, but not profit?
Paper For Above instruction
The primary objective of this analysis is to determine the patient volume required for the Digital Imaging Center’s mammography service to break even under various scenarios. The calculations will incorporate fixed costs, variable costs, reimbursements, and targeted profit margins to evaluate operational feasibility and assist in strategic decision-making regarding staffing and reimbursement rates.
Introduction
The healthcare industry increasingly relies on data-driven decisions to optimize capacity, control costs, and ensure financial sustainability. In the context of a mammography service within a digital imaging center, understanding the break-even point is crucial for assessing whether expanding capacity or staffing is viable. This analysis focuses on determining the necessary patient volume to cover all associated costs and achieve specified profit goals, considering variations in reimbursement rates and staffing adjustments.
Analysis of Fixed and Variable Costs
The fixed costs include equipment lease and maintenance charges for the digital mammography units, while the variable costs encompass technologist and aide wages per procedure, along with other variable expenses. Specifically:
- Fixed Costs:
- Equipment lease per machine: $10,450.00 per month
- Number of machines: 2, so total lease: $2 \times 10,450 = $20,900
- Equipment maintenance per machine: $12,500.00 per month
- Total maintenance cost: 2 \times 12,500 = $25,000
- Variable Costs:
- Technologist cost per mammogram: $31.92
- Technologist aide cost per mammogram: $18.20
- Other variable costs per mammogram: $15.00
- Total variable cost per mammogram: $31.92 + $18.20 + $15.00 = $65.12
Scenario A: Break-Even Patient Volume
To calculate the break-even point, we equate total revenue to total costs:
Total Revenue = Reimbursement per mammogram \(\times\) Patient volume
Total Fixed Costs = Total lease + Total maintenance
Total Variable Costs = Variable cost per mammogram \(\times\) Patient volume
Thus, the break-even point (BEP) is when:
\[
Reimbursement \times \text{Patient Volume} = \text{Total Fixed Costs} + \text{Variable Cost per Mammogram} \times \text{Patient Volume}
\]
Rearranged:
\[
\text{Patient Volume} = \frac{\text{Total Fixed Costs}}{Reimbursement - \text{Variable Cost per Mammogram}}
\]
Inputting the values:
- Total Fixed Costs = $20,900 + $25,000 = $45,900
- Reimbursement per mammogram = $126.30
- Variable cost per mammogram = $65.12
Calculation:
\[
\text{Patient Volume} = \frac{45,900}{126.30 - 65.12} = \frac{45,900}{61.18} \approx 750 \text{ mammograms per month}
\]
Hence, approximately 750 mammograms must be performed monthly to cover fixed and variable costs.
Scenario B: Including Target Profit of $5,000
To incorporate a profit margin, the total revenue must exceed total costs by the desired profit:
\[
Reimbursement \times \text{Patient Volume} = \text{Total Fixed Costs} + \text{Variable Cost per Mammogram} \times \text{Patient Volume} + \text{Target Profit}
\]
Rearranged:
\[
\text{Patient Volume} = \frac{\text{Total Fixed Costs} + \text{Target Profit}}{Reimbursement - \text{Variable Cost per Mammogram}}
\]
Inputting the values:
- Target Profit = $5,000
Calculation:
\[
\text{Patient Volume} = \frac{45,900 + 5,000}{61.18} \approx \frac{50,900}{61.18} \approx 832 \text{ mammograms per month}
\]
Therefore, approximately 832 procedures monthly are required to cover all fixed and variable costs plus achieve a $5,000 profit.
Scenario C: Reduced Reimbursement to $120
Re-evaluating the break-even point with decreased reimbursement rate:
- Reimbursement per mammogram = $120
Calculation:
\[
\text{Patient Volume} = \frac{45,900}{120 - 65.12} = \frac{45,900}{54.88} \approx 837 \text{ mammograms per month}
\]
At this revised rate, approximately 837 mammograms are necessary to break even, indicating that lower reimbursement slightly increases the required patient volume for break-even.
Scenario D: Hiring a New Technologist Aide
Suppose a new aide is hired, adding an additional cost per mammogram. Assuming the cost of hiring the new aide is reflected in an increased variable cost, the new total variable cost per mammogram may be assumed, for example, to increase by a certain amount. For this calculation, let’s consider an increase of \$5.00 per mammogram, making the new variable cost:
- New variable cost per mammogram = \$65.12 + \$5.00 = \$70.12
Using the original reimbursement of \$126.30:
\[
\text{Patient Volume} = \frac{45,900}{126.30 - 70.12} = \frac{45,900}{56.18} \approx 817 \text{ mammograms per month}
\]
Thus, about 817 procedures per month would be needed to break even if an additional aide increases the variable cost by \$5.00 per mammogram, assuming no other changes.
Conclusion
In summary, the current break-even point for the Digital Imaging Center’s mammography services is approximately 750 mammograms per month. To achieve a target profit of \$5,000, the required volume increases to around 832 mammograms. Should reimbursement rates drop to \$120, this number rises slightly to approximately 837, emphasizing the sensitivity of operations to reimbursement levels. Hiring an additional aide, assuming increased variable costs, raises the break-even volume to roughly 817 procedures. These calculations are critical for strategic planning, staffing decisions, and negotiations with payers, ensuring the sustainability of the mammography service within the center.
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