Question

Assume that a radiologist group practice has the following cost structure: Fixed costs $475,616 Variable cost per procedure $24 Charge (revenue) per procedure $97 Furthermore, assume that the group expects to perform 7,395 procedures in the coming year. Also assume that the practice contracts with one HMO, and the plan proposes a 17 percent discount from charges. What is its breakeven point?

Answer 1

The break-even point is when the total costs equal the total revenues. In this case, the total costs are higher than the total revenues, indicating a loss for the practice.

To find the break-even point, we need to calculate the total costs and the total revenues. The total costs consist of fixed costs and variable costs, while the total revenues are obtained by multiplying the number of procedures by the charge per procedure. The break-even point is reached when the total costs equal the total revenues. Let's calculate it step by step:

1. Fixed costs: $475,616
2. Variable cost per procedure: $24
3. Charge per procedure: $97
4. Number of procedures expected: 7,395

Total costs = Fixed costs + (Variable cost per procedure × Number of procedures)

Total costs = $475,616 + ($24 × 7,395) = $1,148,816

Total revenues = Charge per procedure × Number of procedures

Total revenues = $97 × 7,395 = $717,015.15

Therefore, the break-even point is when the total costs ($1,148,816) equal the total revenues ($717,015.15). Since the total costs are higher than the total revenues, the practice would operate at a loss and would not reach the break-even point.