Omega System Services, a member of the Omega Health Foundation operates a free-standing ambulatory care center that averages $60 in charges per patient. Variable costs are approximately $10 per patient, and fixed costs are about $1.2 million per year. Using this data, how many patients must be seen each day, assuming a 365-day operation, to reach the break- even point?
annual income= 365*patientsperday*60
annual costs= 365*patientsperday*10+1,200,000
set the annual costs equal to annual revenue, and solve for patientsperday.
This is a very old problem, looking at the costs and billing numbers, maybe they were valid in 1930.
X = The # patients per day.
365X = The # of patients per year.
Income = 365x Pat./yr * $60/pat.
Income = 21,900x.
Costs=365x pat./yr * $10/pat + 1.2M,
Costs = 3650x + 1.2*10^6.
To break-even:
Income = Cost,
21,900x = 3650x + 1.2*10^6,
21900x - 3650x = 1.2*10^6,
18250x = 1.2*10^6,
X = 66 Patients per day.
To calculate the break-even point, we need to determine the number of patients that need to be seen each day to cover all costs. The break-even point occurs when the total revenue equals the total costs.
First, let's calculate the total costs per day:
Fixed costs per year = $1,200,000
Total costs per day = Fixed costs per year / Total number of days in a year
Total costs per day = $1,200,000 / 365
Next, let's calculate the contribution margin per patient:
Contribution margin per patient = Revenue per patient - Variable costs per patient
Contribution margin per patient = $60 - $10
Now, we can calculate the number of patients needed to reach the break-even point:
Break-even point = Total costs per day / Contribution margin per patient
Substituting the values:
Break-even point = $1,200,000 / 365 / ($60 - $10)
Break-even point = $1,200,000 / 365 / $50
Break-even point = 65.753
Since it is not possible to have a fraction of a patient, we need to round up to the nearest whole number.
Therefore, Omega System Services must see at least 66 patients each day to reach the break-even point, assuming a 365-day operation.