Variable Cost Per Visit: $500, Annual Fixed Costs: $500,000

Variable Cost Per Visit 500annual Direct Fixed Costs 500000ann

Variable cost per visit $5.00 Annual direct fixed costs $500,000 Annual overhead allocation $50,000 Expected annual utilization 10,000 visits a. What per visit must be set for the service to break even? To earn an annual profit of $100,000? b. Repeat Part a, but assume that the variable cost per visit is $10. c. Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000. d. Repeat Part a assuming both a $10 variable cost and $1,000,000 in direct fixed costs. Must be done on excel.

Paper For Above instruction

Analyzing the financial viability of a service involves understanding the relationship between costs, revenue, and profitability. This paper explores the calculation of per visit pricing required for a service to break even and achieve desired profit margins under varying cost scenarios. Using the provided data—variable costs per visit, fixed costs, overhead allocations, and utilization—we will employ fundamental managerial accounting principles to determine the necessary per visit fees in each case. The calculations will be performed in Excel, providing a detailed walkthrough for each scenario.

Initially, considering the baseline data with a variable cost per visit of $5.00, annual fixed costs of $500,000, and other fixed costs of $50,000, along with an estimated 10,000 visits annually, we aim to determine the break-even price per visit and the price needed to attain a $100,000 profit. The break-even point is where total revenue equals total costs, i.e., Price per visit times total visits equals total fixed and variable costs. To cover fixed costs and variable costs with revenue, the required per visit price can be calculated by dividing total costs by the number of visits.

The general formula for the break-even price per visit (P) is:

P = (Total Fixed Costs + Total Variable Costs) / Number of Visits

where Total Variable Costs = Variable Cost per Visit × Number of Visits.

For the initial data:

Total Variable Costs = $5.00 × 10,000 = $50,000.

Total Fixed Costs = $500,000 + $50,000 = $550,000.

Thus, the break-even price (P) is:

P = ($550,000) / 10,000 = $55 per visit.

To target an annual profit of $100,000, the revenue needed is:

Total Revenue = Total Costs + Profit = $550,000 + $100,000 = $650,000.

Therefore, the required per visit price is:

P = $650,000 / 10,000 = $65 per visit.

Repeating similar steps with different cost assumptions, we analyze scenarios with a variable cost of $10 per visit, fixed costs of $1,000,000, and both increased variable costs and fixed costs:

• When variable cost per visit increases to $10, total variable costs become $10 × 10,000 = $100,000.
• With fixed costs at $1,000,000, total fixed costs are $1,000,000 + $50,000 (overhead) = $1,050,000.

Applying the same formulas:

At $10 variable cost:

Break-even price: (Fixed Costs + Variable Costs) / Number of Visits = ($500,000 + $50,000 + $100,000) / 10,000 = ($650,000) / 10,000 = $65 per visit.

To achieve a $100,000 profit:

Total revenue: $650,000 + $100,000 = $750,000.

Required per visit price: $750,000 / 10,000 = $75.

With $1,000,000 fixed costs:

Break-even price: ($1,000,000 + $50,000 + $100,000) / 10,000 = $1,150,000 / 10,000 = $115 per visit.

To earn a $100,000 profit:

Total revenue: $1,150,000 + $100,000 = $1,250,000.

Required per visit price: $1,250,000 / 10,000 = $125.

Finally, combining both higher variable costs ($10) and higher fixed costs ($1,000,000):

Total costs: $1,000,000 (fixed) + $50,000 (overhead) + $100,000 (variable at $10 per visit) = $1,150,000.

Break-even price: $1,150,000 / 10,000 = $115 per visit.

Profit target of $100,000 increases total needed revenue to $1,250,000, resulting in:

Price per visit = $1,250,000 / 10,000 = $125.

These calculations demonstrate the critical role of cost management and pricing strategies in healthcare service management. Accurate cost analysis enables providers to establish appropriate pricing to ensure financial sustainability while meeting profit objectives. Using Excel, these calculations can be systematically performed by creating formulas that adjust dynamically with input variables, facilitating scenario analysis and informed decision-making.

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