Question

General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient service
Fixed costs	$10,000,000
Variable cost per inpatient day	200
Charge (revenue) per inpatient day	1,000
The hospital expects to have a patient load of 15,000 inpatient days next year.
a. Construct the hospital’s base case projected P&L statement
b. What is the hospital’s breakeven point?
c - part 1 - What volume is required to provide a profit of $1,000,000?
c - part 2 - A profit of $500,000?

Answer 1

a.

General Hospital Projected P/L Statement
Patient Revenues	$ 15,000,000
Variable costs	3,000,000
Contribution Margin	12,000,000
Fixed Costs	10,000,000
Net Income	$ 2,000,000

b. Break-even point = Total Fixed Cost / Contribution Margin per inpatient day = $ 10,000,000 / $ ( 1,000 - 200) = 12,500 inpatient days.

c.1. To earn a profit of $ 1,000,000, volume required = ( Target Profit + Total Fixed Cost ) / Contribution Margin per inpatient day = $ ( 1,000,000 + 10,000,000) / $ 800 = 13,750 inpatient days.

c.2. To earn a profit of $ 500,000, volume required = $ ( 500,000 + 10,000,000 ) / $ 800 = 13,125 inpatient days.