Susquehanna Medical Center Computation of Break-Even Point in Patient-Days: Pediatrics For The Year Ended June 30, 20X6

RAGADIO, ED TRISTAN O.
BSE 3A
CHAPTER 7: CASE - 1
SUSQUEHANNA MEDICAL CENTER

COMPUTATION OF BREAK-EVEN POINT
IN PATIENT-DAYS: PEDIATRICS
FOR THE YEAR ENDED JUNE 30, 20X6
Total fixed costs:
Medical center charges
$3,480,000
Supervising nurses ($30,000 4)
120,000
Nurses ($24,000 10)
240,000
Aids ($10,800 20)
216,000
Total fixed costs
$4,056,000
Contribution margin per patient-day:
Revenue per patient-day
$360
Variable cost per patient-day:
($7,200,000 $360 = 20,000 patient-days)
($2,400,000 20,000 patient-days)
120
Contribution margin per patient-day
$240
Break-even point =
TOTAL FIXED COSTS
=
$4,056,000
in patient-days
contribution margin per patient - day
= 16900 patient days
240
SUSQUEHANNA MEDICAL CENTER

COMPUTATION OF LOSS FROM RENTAL
OF ADDITIONAL 20 BEDS: PEDIATRICS
FOR THE YEAR ENDED JUNE 30, 20X6
Increase in revenue
(20 additional beds 90 days $360 charge per day)
$ 648,000
Increase in expenses:
Variable charges by medical center
(20 additional beds 90 days $120 per day)
$ 216,000
Fixed charges by medical center
($3,480,000 60 beds = $58,000 per bed)
($58,000 20 beds)
1,160,000
Salaries
(20,000 patient-days before additional 20 beds + 20 additional
beds 90 days = 21,800, which does not exceed 22,000 patient-days;
therefore, no additional personnel are required)
-0Total increase in expenses
$1,376,000
Net change in earnings from rental of additional 20 beds
$ (728,000)
RAGADIO, ED TRISTAN O.
BSE - 3A
CASE II
LAKE CHAMPLAIN SPORTING GOODS COMPANY
Budgeted Income Statement
For the Year ended December 31, 20x4
1. Break-even point for 20x4, based on current budget:

Contribution-margin ratio= $15,000,000 - $9,000,000 -$3,000,000
$15,000,000
= .20
Break-even point =
Fixed expenses_____
Contribution-margin ratio
= $150,000 = $750,000
.20
2. Break-even point given employment of sales personnel:
New fixed expenses:
Previous fixed expenses
150,000
Sales personnel salaries (3 x $45,000)
135,000
Sales managers salaries (2 $120,000)
240,000
Total
525,000
New contribution-margin ratio:

Sales
$15,000,000
Cost of goods sold
9,000,000
Gross margin
6,000,000
Commissions (at 5%)
750,000
Contribution margin
5,250,000
Contribution margin ratio = $5,250,000 = .35

$15,000,000
Estimated break even point = Fixed expenses___
Contribution margin ratio
=$525,000 = $1,500,000
.35
3. Assuming a 25% sales commission:

New contribution-margin ratio:
Sales
15,000,000
Cost of goods sold
9,000,000
Gross margin
6,000,000
Commissions (at 25%)
3,750,000
Contribution margin
2,250,000
Contribution margin ratio = $15,000,000/ $2,250,000 =.15

Sales volume in dollars
required to earn after-tax = fixed expenses+ target after tax net income/ (1t)
net income
contribution margin ratio
= $150,000+ $1,995,000/(1-.3) = $3,000,000
.15
= .15
= $20,000,000
Check:
Sales
20,000,000
Cost of goods sold (60% of sales)

12,000,000
Gross margin
8,000,000
Selling and administrative expenses:
Commissions
All other expenses (fixed)
5,150,000
Income before taxes
2,850,000
Income tax expense (30%)
855,000
Net income
1,995,000
4.
$
$ 5,000,000
150,000
$
Sales dollar volume at which Lake Champlain Sporting Goods Company is

indifferent:
Let X denote the desired volume of sales.
Since the tax rate is the same regardless of which approach management
chooses, we can find X so that the companys before-tax income is the
same under the two alternatives. (In the following equations, the
contribution-margin ratios of .35 and .15, respectively, were computed in
the preceding two requirements.)
.35X $525,000 = .15X $150,000
.20X = $ 375,000
X = $ 375,000/.20
X = $ 1,875,000
Thus, the company will have the same before-tax income under the two
alternatives
if the sales volume is $1,875,000.
Check:
Alternatives
Employee
Sales
Personnel
Pay 25%
Commission
Sales
$1,875,000
Cost of goods sold (60% of sales)
1,125,000
Gross margin
$ 750,000
Selling and administrative expenses:
Commissions
468,750
All other expenses (fixed)
150,000
Income before taxes
$ 131,250
Income tax expense (30%)
39,375
Net income
$ 91,875
*$1,875,000 5% = $93,750
$1,875,000 25% = $468,750
$1,875,000
1,125,000
750,000
93,750*
525,000
$ 131,250
39,375
$ 91,875

Susquehanna Medical Center Computation of Break-Even Point in Patient-Days: Pediatrics For The Year Ended June 30, 20X6

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Susquehanna Medical Center Computation of Break-Even Point in Patient-Days: Pediatrics For The Year Ended June 30, 20X6

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RAGADIO, ED TRISTAN O.

SUSQUEHANNA MEDICAL CENTER

SUSQUEHANNA MEDICAL CENTER

1. Break-even point for 20x4, based on current budget:

New contribution-margin ratio:

Contribution margin ratio = $5,250,000 = .35

3. Assuming a 25% sales commission:

Contribution margin ratio = $15,000,000/ $2,250,000 =.15

Cost of goods sold (60% of sales)

Sales dollar volume at which Lake Champlain Sporting Goods Company is

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