Break-Even Analysis

Running head: BREAK-EVEN ANALYSIS

Break-even Analysis

Rene B. Avila

ACC/HC561 – Accounting in a health care environment

November 07, 2011

Ruth Brown

Getwell Clinics Break-even Analysis

Getwell Clinic is a facility that specializes in the care and treatment of three types of patients registered as DRG-M, DRG-J, and DRG-P. The new director of the satellite office, Dr. Barkley, has requested analysis of each DRG’s break-even points. The purpose of this paper is to provide a response of which DRG would be most profitable to promote in a growing practice. The relevance of DRG analysis along with break-even calculations and recommendations will be discussed.

Break-even analysis is a formula that allows an organization to know when total expenses are the same as the total revenues. The break even technique helps managers obtain information that tells the financial viability of the proposed and existing programs or services; when this point is reach no profit or losses have be made as of yet. Many costs can be associated with the break-even analysis technique; fixed cost and variable cost are usually the main costs need to determine when the companies will break-even. Fix Cost is a cost that stays the same and do not change no matter how many items the company sells or consumes. Variable costs are cost that could change depending on the selling price or units sold. The price of the items or services is important due to the fact that the price is helps determines any possible revenues.

Total Calculations are as followed:

DRG Proportion Charge Variable Cost Fixed Cost break-even

M 45% * $2,000= 900 - $1,000* 45%= 450 / $850,000 1888.89

J 30% * 3,000= 900 - 1,500* 30%= 450 / 800,000 1777.78

P 25% * 1,200= 300 - 300 * 25% = 75 / 100,000...