Assignment 2: Course Project Task 4—Analyze Cost Behavior and Calculate Breakeven AnalysesIn this...

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Assignment 2: Course Project Task 4—Analyze Cost Behavior and Calculate Breakeven Analyses
In this assignment, you will carry out a profit analysis for the SMH facility. Focus the analysis on a specific product line. You will develop a cost-volume-profit template to help measure costs and changes to variable and indirect costs using SMH data. Through this assignment, you will become familiar with the concepts of breakeven point, contribution margin, and operating leverage.
You will prepare a report that compares your findings on costs and changes to variable and indirect costs. Include the potential financial benefits the facility might realize if it incorporated changes to the revenue or cost structure.
For your analysis, you can use the SMH data file, which you had downloaded from the Doc Sharing area.
Using the SMH data file you will do the following:

Develop a template of costs. You should separate expenses into variable and fixed expenses. The SMH data file contains a template to provide some guidance.

Calculate the breakeven point in patient days.
Note: Breakeven point = Total fixed cost / (per patient day revenue – per patient day variable expenses)

Calculate the breakeven point assuming a 5 percent increase in clinical salaries and a 4 percent increase in officer salaries.

A physician wants to add a new procedure that will increase direct patient care expense by $200 per day. What is the impact on GP and the breakeven point? Provide your comments.

The hospital is considering hiring a physician. This will increase annual costs by $250,000. However, with the addition of this physician, it is anticipated that patient days will increase by 6 percent. Is this a good move for the hospital? Provide your comments.

Many times it is difficult to determine if a cost is variable or fixed. In addition, costs may be variable, but only in a relevant range. Do you agree with the categorization of costs as they are presented on the template in the SMH data file? Would you recommend changes? What additional information would help you analyze the data? Provide your comments.

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David · Accepted Answer

Running Head: BREAK EVEAN ANALYSIS – SMH HOSPITAL 1
Breakeven Analysis – SMH Hospital 
Student’s Name 
Course Name 
University Name 
Date 
BREAK EVEAN ANALYSIS – SMH HOSPITAL 2
Breakeven Analysis – SMH Hospital 
Introduction 
While defining a business strategy an organization must perform breakeven analysis as it 
will help them in deciding the future course of actions and plan accordingly. In order to leverage 
breakeven analysis an organization must prepare its budget in advance which will help in 
extracting the relevant figures on the basis of which breakeven analysis will be performed. 
Breakeven analysis is performed to determine the minimum no. of units that must be sold by the 
organization in order to cover all its fixed costs, while defining business strategy the company 
can easily estimates the cost and benefits of each strategy and by the help of such figures can 
choose the right strategy based on the expected demand of the product or service in the market. 
Breakeven point is the point where the company has no profit and no loss situation. It is 
the point where the total sales of the company is equal to the total costs incurred by the company 
for the particular project. All the sales done after the breakeven point will result in profits. 
Contribution per unit = Sales price per unit minus variable cost per unit (Finkler, Ward & 
Calabrese, 2011) 
   P/V Ratio = Contribution per unit/ Sales price per unit * 100 
   Breakeven point= Fixed costs/contribution per unit or p/v ratio. 
For analyzing the breakeven point, it is important for the hospital to recognize the 
variable and fixed costs. Variable costs are the costs which vary with the units produced. 
Variable costs are costs that are directly related to production units. Variable costs generally 
include direct labor and direct materials. Fixed Cost can be defined as those cost which does not 
change with the change in production or sales level, such as rent, property tax, insurance, or 
interest expense.

Assignment 2: Course Project Task 4—Analyze Cost Behavior and Calculate Breakeven Analyses In this assignment, you will carry out a profit analysis for the SMH facility. Focus the analysis on a...

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