You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:
Revenues (10,000 visits) $400,000
Wages and benefits 220,000
Rent 5,000
Depreciation 30,000
Utilities 2,500
Medical Supplies 50,000
Administrative supplies 10,000
Assume that all costs are fixed except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 30% rate.
Q. What number of visits is required to break even?
To determine the number of visits required to break even, we need to calculate the total costs of the clinic.
Fixed costs are costs that do not change based on the number of visits. In this scenario, the only fixed costs are rent, depreciation, utilities, and administrative supplies:
Fixed costs = Rent + Depreciation + Utilities + Administrative supplies
= $5,000 + $30,000 + $2,500 + $10,000
= $47,500
Variable costs are costs that vary based on the number of visits. In this scenario, the only variable cost is medical supplies:
Variable costs per visit = Medical supplies / Number of visits
= $50,000 / 10,000
= $5
Now, to calculate the total costs, we need to multiply the variable costs per visit by the number of visits and add the fixed costs:
Total costs = Fixed costs + (Variable costs per visit × Number of visits)
= $47,500 + ($5 × Number of visits)
To break even, the revenue should be equal to the total costs:
Revenue = Total costs
$400,000 = $47,500 + ($5 × Number of visits)
To solve for the number of visits, we need to rearrange the equation:
$5 × Number of visits = $400,000 - $47,500
Number of visits = ($400,000 - $47,500) / $5
Number of visits = $352,500 / $5
Number of visits ≈ 70,500
Therefore, the clinic would need approximately 70,500 visits to break even.
To calculate the number of visits required to break even, we need to consider the clinic's fixed costs and variable costs.
Fixed costs include wages and benefits, rent, depreciation, and utilities. These costs remain constant regardless of the number of visits. The total fixed costs can be calculated as:
Total fixed costs = Wages and benefits + Rent + Depreciation + Utilities
= $220,000 + $5,000 + $30,000 + $2,500
= $257,500
Variable costs include medical supplies and administrative supplies. These costs vary depending on the number of visits. The variable cost per visit can be calculated as:
Variable cost per visit = (Medical Supplies + Administrative Supplies) / Number of visits
= ($50,000 + $10,000) / 10,000
= $6
To calculate the break-even point, we need to find the number of visits that will cover both the fixed costs and variable costs per visit.
Break-even point (in visits) = Total fixed costs / Variable cost per visit
= $257,500 / $6
= 42,916.67 visits
Therefore, the clinic would need approximately 42,917 visits to break even.