Question

You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows: Revenue (10000 visits) $415,103 Wages and benefit $200,624 Rent $4,270 Depreciation $27,041 Utilities $2,713 Medical supplies $46,511 Administrative supplies $8,478 Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 30 percent rate. What number of visits is required to break even

Answer 1

To determine the break-even number of visits for the walk-in clinic, fixed and variable costs were calculated, and a break-even formula was applied, taking into account the tax rate. The clinic would require approximately 10,475 visits to break even.

Step-by-step explanation:

To determine the number of visits required to break even for the walk-in clinic, we must first calculate both the fixed and variable costs and then apply the concept of the break-even point.

Calculation of Costs

Fixed costs include wages, rent, depreciation, utilities, and administrative supplies, which total to $241,124 ($200,624 + $4,270 + $27,041 + $2,713 + $8,478).

Variable costs relate directly to the number of visits, which for medical supplies amounts to $46,511. These are the costs that will vary with the level of production or the number of visitors.

Break-Even Analysis

To calculate the break-even point, we can use the following formula:

• Total Fixed Costs / (Revenue per visit - Variable Cost per visit)

First, we find the revenue per visit by dividing total revenue by the number of visits, giving us $415,103 / 10,000 visits = $41.51 per visit. Next, we find the variable cost per visit by dividing the total variable costs by the number of visits, which is $46,511 / 10,000 visits = $4.65 per visit.

Now, to find out the number of visits needed to break even, we divide the total fixed costs by the difference between the revenue per visit and the variable cost per visit: $241,124 / ($41.51 - $4.65) per visit.

Before we can finalize this calculation, we also need to factor in the tax rate. Since the clinic pays taxes at a 30 percent rate, the net revenue per visit after taxes is 70% of $41.51, which is $29.06. Therefore, the calculation is $241,124 / ($29.06 - $4.65) = 10,475 visits approximately to break even.