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?
20
To determine the break-even point, we need to calculate the total costs and subtract it from the total revenue. The break-even point refers to the number of visits required to cover all costs, resulting in zero profit or loss.
Let's calculate the total costs first:
Fixed Costs = Wages and benefits + Rent + Depreciation + Utilities + Administrative supplies
= $220,000 + $5,000 + $30,000 + $2,500 + $10,000
= $267,500
Variable Costs = Medical Supplies
= $50,000
Total Costs = Fixed Costs + Variable Costs
= $267,500 + $50,000
= $317,500
Next, we'll calculate the revenue per visit:
Revenue per visit = Total revenue / Number of visits
= $400,000 / 10,000
= $40
Now we can calculate the break-even point:
Break-even point (in visits) = Total Costs / Revenue per visit
= $317,500 / $40
= 7,937.5
Since you cannot have a fraction of a visit, we round up to the nearest whole number. Therefore, the break-even point is approximately 7,938 visits.
To break even in the first year of operations, you would need a minimum of 7,938 visits.