assignment 1

CASE Lakeside Hospital

Financial information & decision making bm01Afm 2015-2016

The abovementioned students declare that this report contains original work and all the team members equally contributed to its preparation.

Question 1.

To calculate the break-even volume for the dialysis unit we first assume that every patient receives three treatments a week, 156 a year. We use the numbers of last year to calculate the break-even volume as stated in exhibit 1 and 2 of the case. We assume that the allocated expenses and all other costs, except for the major equipment depreciation, stay the same. Since the 14 machines cannot be sold after four years and they are for already five years in the company, we define this as a sunk cost and the major equipment depreciation is not included in the calculation of the break-even volume.

The fixed costs are the salaries and wages as stated in Exhibit 2. The supplies and purchases services are not included since they differ according to the number of treatments provided. The fixed costs are therefore 438,900 + 71,970=$510,870. However the annualized salaries have decreased by 84,000 and the fringe benefits by 8,400 and the major equipment depreciation of 26,250 is not included anymore. The fixed costs decrease to $392,220 (510,870 – 84,000 – 8,400 – 26,250 =$392,220). The allocated expenses are $277,267, which makes total fixed costs of (277,267+392,220) $669,487.
Variable costs are water usage, medical supplies and purchased lab services = 539,178/5736=94 per treatment
Price = $250 as stated in the text
Break-even analysis
BEP = Fixed costs/(price - variable costs)
669,487 / (250-94) =4292 treatments a year. This means that the breakeven volume for the dialysis unit is; (4292/156) = 27,51 = 28 patients.

Question 2

Fair share of overhead