Expense Forecasting Scenario:
According to the information given, we have prepared the following 20X1 expense forecast:
| The Expense Type | Year to date Expense | Fix Annual Rates | Calculation of Annualized Variable | Total annualized amounts |
|---|---|---|---|---|
| Fix Expenses | $210,000 | $420,000 | – | $420,000 |
| Fixed Expenses | $1,200,000 | – | $2,400,000 | $2,400,000 |
| Joint Commission Survey | $50,000 | $100,000 | – | $100,000 |
| Salary and fringe benefits | – | – | – | $384,000 |
| The Total | $1,460,000 | $520,000 | $2,400,000 | $2,304,000 |
Note: The adjusted total for year-to-date fixed expenses is $210,000 – $50,000 = $160,000.
Financial Analysis Cycle
The Marginal Loss Scenario
| The Category | Quantity |
|---|---|
| Revenue (1,400 procedures * $1,000) | $1,400,000 |
| Less: Cost of Supplies (1,400 procedures * $300) | $420,000 |
| Gross Margin | $980,000 |
| Reduced Salary Costs | $540,000 |
| Fringe benefits (25 % of $540,000). | $135,000 |
| Less: Rent | $55,000 |
| Less: Operating Costs | $120,000 |
| Margin net | $130,000 |
The analysis suggests that the business opportunity is worth pursuing as it will likely yield a margin net of $130,000.
Break-Even Analysis Scenario:
Calculate the contribution margin for each unit:
Contribution Margin = Price per Unit – Variable Cost per Unit = $1,075 – $420 = $655
You can calculate the breakeven point using this formula:
Break-even point = Fixed costs / Contribution margin = 4,700,000 $ / 655 $ = 7,175.57
The new service will be financially viable because the break-even point is lower than the expected demand.
Benefit/Cost Ratio Analysis Scenario:
Benefit/cost ratio can be calculated using the following formula:
Total Benefits = (150,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^1 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^2 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^3 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^4 + (30,000 units * $15 per unit * 50% collection rate * 5 years) / (1 + 0.075)^5 = $11,032,023.29
Total Costs = $4,500,000 + $4,950,000 + ($12.5 per hour * 2,000 hours per FTE * 10 FTEs * 5 years * 1.2 fringe benefit rate) = $7,200,000
Benefit-Cost Ratio = Benefits Totals/Costs Totals = $7,200,000 / $11,032,023.29 = 1.53
The basis of the
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