Acquisition Background
An equipment acquisition proposal had been received by a health care organization for a medical array machine. The array machine will allow the hospital to perform in-house autoimmunity tests rather than sending them off site to a reference laboratory. The off-site laboratory currently has a two day turn around time and charges the hospital $10 per test. The purpose of this analysis is to prove to the board that this acquisition proposal of the array machine is in deed beneficial to the hospital and will increase revenue and profits.
Break Even Analysis
Based on the current operation, the hospital sends lab work to an off-site laboratory to perform autoimmunity tests for immunoglobulins G, M, and A and complements C3 and C4. On average the hospital performs test of one of each of the five autoimmunity tests per day, for a total of five tests. The hospital pays the off-site laboratory $10 per test and charges patients $20 per test. The proposal notes that the hospital could keep these tests on-site and profit by the purchase of the array machine. The hospital would have to pay approximately $2 per test for reagents. The hospital performs 1,560 tests per year. First, it is important to understand the Break Even Analysis on this purchase. The following shows the Break Even Analysis figures based on the equipment’s five-year life span and how many autoimmunity tests per year that would have to be performed on the array machine to break even:
R = Revenue P = Revenue Received Per Unit Sold
F = Fixed Costs S = Number of Units Sold
V = Variable Costs B = Break Even Number Units Sold
T = Total Costs
Total Fixed Cost (T) = $50,000
Variable Cost Per Unit (V) = $2.00 - Reagent costs
Sales Price Per Unit (P) = $20.00
