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.

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.

• 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.