Break Even Analysis In Nursing Home
In the case study of the nursing home, the second assignment was to determine the net income in the instance that the volume increased by 10 percent from 26,000 patient days to 28,600 patient days with the payer mix remaining unchanged. To note the facts, the current volume provided will now be expressed as 28,600 patient days. The current average daily cost per patient day will remain at $90. The payer mix would remain the same. The previous charge patient revenue was $750,000 for 6,000 patient days, which calculated to $125 per patient day. The previous fixed patient revenue was $1,800,000 for 20,000 patient days, which calculated to $90 per patient day. The total costs for the new volume of 28,600 patient days would be $2,574,000.
…show more content…
Also, previously mentioned was that the break-even analysis received it’s named due to fact that the expected profit happens to equal to zero and the total revenue also equals the total costs (Cleverley, Cleverley, & Song, 2012). In order to determine a profit, the net income must exceed the total costs. There is no profit unless the revenue exceeds the costs. Any amount of output over the break-even point will be considered as a profit. The original net income profit was $210,000. This calculation was determined by subtracting the total costs of $2,340,000 from the total net revenue of $2,550,000. To determine the new profit, the new net revenue must be calculated with the same payer mix. A 10 percent increase to the charge patient days would be from the original amount of 6,000 to 6,600 patient days. The increased patient days of 6,600 times the original $125 per day equals to $825,000. A 10 percent increase to the fixed patient days would be from the original amount of 20,000 to 22,000 patient days. The increased patient days of 22,000 patient days times the original $90 per day equals to $1,980,000. The total net revenue equals to $2,805,000. Therefore the new net income would be calculated by subtracting the total costs of $2,574,000 from the total net revenue of $2,805,000, which equals $231,000. Therefore, it’s concluded that the 10 percent increase in volume will also cause a 10 percent increase in the net income from $210,000 to
Also, previously mentioned was that the break-even analysis received it’s named due to fact that the expected profit happens to equal to zero and the total revenue also equals the total costs (Cleverley, Cleverley, & Song, 2012). In order to determine a profit, the net income must exceed the total costs. There is no profit unless the revenue exceeds the costs. Any amount of output over the break-even point will be considered as a profit. The original net income profit was $210,000. This calculation was determined by subtracting the total costs of $2,340,000 from the total net revenue of $2,550,000. To determine the new profit, the new net revenue must be calculated with the same payer mix. A 10 percent increase to the charge patient days would be from the original amount of 6,000 to 6,600 patient days. The increased patient days of 6,600 times the original $125 per day equals to $825,000. A 10 percent increase to the fixed patient days would be from the original amount of 20,000 to 22,000 patient days. The increased patient days of 22,000 patient days times the original $90 per day equals to $1,980,000. The total net revenue equals to $2,805,000. Therefore the new net income would be calculated by subtracting the total costs of $2,574,000 from the total net revenue of $2,805,000, which equals $231,000. Therefore, it’s concluded that the 10 percent increase in volume will also cause a 10 percent increase in the net income from $210,000 to