A regional hospital uses a planning process to define a new radiology service line. The decision matrix gave it a high priority, and administrators want to evaluate its financial feasibility. Estimated fixed costs are Rs. 100000, and the estimated net reimbursement level is Rs.1500. Physician and other provider salaries on a direct basis are Rs. 220 each procedure, and total operation expenses will be Rs.275 per procedure.

(i) Calculate the breakeven point for this new service line.

(ii) Using a standard markup ratio of 25%, the hospital discovered a way to reduce the total investment to 35% of the current fixed costs, causing the average price level to fall to Rs.1200 and the other assumptions stay the same, how many procedures would be required to breakeven?

(iii) Assuming that the hospital feels it can deliver 2500 procedures conservatively in the first year, which option should be chosen?

 

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Breakeven Analysis for the New Radiology Service Line I Breakeven Point Calculation i Option 1 Formu... View the full answer