Importance of Break-Even Analysis
• Break-Even Analysis
Write a 4–6 page paper discussing the importance of a break-even analysis when making a decision to lease or buy a piece of equipment. Conduct your own independent research and provide an example of a break-even analysis conducted in a health care organization. Complete the following:
• Prepare a strategic assessment of the sample break-even analysis you researched. Within your assessment, discuss when it is appropriate to use a break-even analysis and how a break-even analysis is done.
• Analyze the financial data in the sample break-even analysis and explain the potential implications for the health care institution. Discuss the role of fixed and variable costs in the break-even analysis and how indirect costs and profit are factored into the analysis.
• Evaluate the probable priorities and expectations of stakeholders surrounding this break-even analysis.
• Discuss if you would develop a strategic plan to move forward based on the sample break-even analysis.
• Explain how the sample break-even analysis might be used to make a long-term financial decision.
• Assess the potential financial impact of the sample break-even analysis as it relates to organizational strategy, patient care, or community health.
Submission Requirements
Your paper should meet the following requirements:
• Written communication: Your 4–6 page paper should clearly identify where each grading criterion or part of the assignment is addressed by using APA-formatted headings and subheadings. Your writing needs to communicate professionally, with correct English usage. Your points need to be logical, substantive, and relevant based on the evidence presented. In addition, your communication must be free of errors that detract from the overall message.
• APA formatting: Resources and citations are formatted according to APA style and formatting.
• Parts of document: Your paper should include the following:
o Title page.
o Table of contents.
o Body of paper with APA-formatted headings and subheadings.
o References.
• Font and font size: Times New Roman, 12 point.
Submit your Word document in the assignment area by midnight CST Sunday. Attach spreadsheets, if any.
Be sure to review the scoring guide to understand how the assignment will be graded.
Resources
• Break-Even Analysis Scoring Guide.
• Evidence and APA.
• APA Style Paper Template [DOCX].
• Toggle Drawer
[u08d1] Unit 8 Discussion 1
Strategic Decision-Making
Review Chapters 16 and 24 of Baker's Health Care Finance: Basic Tools for Nonfinancial Managers, and respond to the following:
• Describe in detail the six major components of strategic planning.
• Discuss three ways benchmarking can be conducted.
• Explain why strategic planning and benchmarking are important to strategic decision-making by health care administrators.
Remember to use citations and references as appropriate. Your post must follow APA style and formatting guidelines. See the Campus Evidence and APA page, linked in the Resources, for more information. Submit your initial discussion response by Thursday.
GRADUATE DISCUSSION PARTICIPATION SCORING GUIDE
Due Date: End of weekly
Percentage of Course Grade: 30%.
GRADUATE DISCUSSION PARTICIPATION GRADING RUBRIC
Criteria Non-performance Basic Proficient Distinguished
Apply relevant course concepts, theories, or materials correctly.
25% Does not explain relevant course concepts, theories, or materials. Explains relevant course concepts, theories, or materials. Applies relevant course concepts, theories, or materials correctly. Analyzes course concepts, theories, or materials correctly, using examples or supporting evidence.
Collaborate with fellow learners, relating the discussion to relevant course concepts.
25% Does not collaborate with fellow learners. Collaborates with fellow learners without relating the discussion to the relevant course concepts. Collaborates with fellow learners, relating the discussion to relevant course concepts. Collaborates with fellow learners, relating the discussion to relevant course concepts and extending the dialogue.
Apply relevant professional, personal, or other real-world experiences.
25% Does not contribute professional, personal, or other real-world experiences. Contributes professional, personal, or other real-world experiences, but contributions lack relevance. Applies relevant professional, personal, or other real-world experiences. Applies relevant professional, personal, or other real-world experiences to extend the dialogue.
Support position with applicable knowledge.
25% Does not establish relevant position. Establishes relevant position. Supports position with applicable knowledge. Validates position with applicable knowledge.
Participation Guidelines
Actively participate in discussions. To do this you should create a substantive post for each of the discussion topics. Each post should demonstrate your achievement of the participation criteria. In addition, you should respond to the posts of at least two of your fellow learners for each discussion question—unless the discussion instructions state otherwise. These responses to other learners should be substantive posts that contribute to the conversation by asking questions, respectfully debating positions, and presenting supporting information relevant to the topic. Also, respond to any follow-up questions the instructor directs to you in the discussion area.
To allow other learners time to respond, you are encouraged to post your initial responses in the discussion area by midweek. Comments to other learners' posts are due by Sunday at 11:59 p.m. (Central time zone).
Evidence and APA Citation
CAPELLA WRITING STANDARD
Integrate appropriate evidence
Appropriately quote, summarize, or paraphrase evidence in your writing and include properly formatted APA in-text citations and references.
APA Style and Format
Capella requires that learners use APA Style to give credit to the authors of external sources. APA promotes the ability to paraphrase and summarize, create concise texts, and develop in-text citations and reference pages that will connect readers to important sources of evidence.
What Does It Mean To "Use APA"?
• Law Icon
BASICS OF ETHICAL ACADEMIC WORK
APA has a foundation in academic honesty and integrity. To uphold these terms, writers must provide citation of external ideas or sources, eliminate bias from their texts, and aim for objectivity.
• File Text Icon
BASICS OF DOCUMENT ORGANIZATION
APA provides writers with organizational tactics for sections of a text as well as standard formatting guidelines for student papers, including formatting for the title page, section headings, and reference page.
• Quotes Icon
BASICS OF CITATION
APA promotes the author/year writing process, wherein ideas from external sources are immediately cited in-text, using the author's last name(s) and year of publication.
Why Does Capella Use APA Citation Style?
Using a single citation style ensures consistency across degrees, programs, and schools. APA style is used worldwide in many fields, making it a good fit for the range of academic programs offered at Capella.
Graduate and Advanced Doctoral Learners
Visit Graduate Evidence and APA Citation and Advanced Doctoral Evidence and Ethics for additional degree-level expectations.
Breakeven Analysis
Name
Institution
Course
Instructor
Due Date
Breakeven Analysis
Breakeven analysis is one of the most important tools in healthcare financial management. To illustrate the importance of breakeven analysis, a sample breakeven analysis if reviewed. The reviewed breakeven analysis example considered the breakeven analysis of introducing a Computed Tomography (CT) scan in a healthcare organization given the high costs associated with the radiology department and the acquisition of such equipment. To this end, a retrospective study of the costs associated with the acquisition of the CT scan were calculated. The first step take to calculate the revenues on CT scan facility was a calculation of the costs of the CT Scan facility. The costs included the fixed costs that covered the cost of the machine and furniture that was depreciated at 10 percent per annum using the straight-line method, the cost of the auxiliary equipment, and the maintenance costs. In addition, the land and building costs were included and the rental value per year considered. The running costs included the salaries for the staff required to run the CT scans, variables costs that depended on the number of scans completed, and other miscellaneous expenses. The total fixed costs for the year under review was US$ 4,000,000, while the variable costs per scan was US$ 700. The total revenue generated for every scan was US$ 1800. Based on the figures above, the breakeven point was determined to be the sale of 3,640 units (the volume of activity at which the profit will be equals to “0”). Notably, the hospital managed 3,505 scans in the first year, 4300 scans in second year, and 4,040 scans in third years. Thus, the hospital managed to break even after one year and few months.
Strategic Assessment
Notably, the breakeven analysis provided a reliable tool for the financial feasibility and profitability of investing in a CT scan at the hospital. Breakeven analysis is appropriate when a healthcare organization wants to assess the financial viability of a new venture, product, or service (Laskaris & Regan, 2013). It helps decision-makers understand the minimum level of activity required to cover all costs and avoid losses. In this case, the healthcare organization considered the high costs associated with the radiology department and the acquisition of a CT scan machine, making a break-even analysis relevant to determine the profitability of the investment. Notably, breakeven analysis also facilitates sensitivity analysis as one can alter key variables to assess the impact of different market conditions and operational changes on profitability. The understanding of the breakeven point of a given investment can also be used to guide future expansion plans as the minimum activity levels required to breakeven can inform strategic decisions on pricing, staffing, and capacity utilization to maximize growth and profitability.
From the example, the breakeven analysis involves four main steps. First, one must determine the fixed and variable costs associated with the investment. Fixed costs included the depreciated cost of the machine and furniture, auxiliary equipment, maintenance costs, and land/building costs. Variable costs included salaries, variable expenses related to the number of scans completed, and miscellaneous expenses. The next step involved calculation of the revenue generated from the project. In this case, the revenue per scan was determined to be US$ 1800. Notably, the breakeven point is the volume of activity at which the organization neither makes a profit nor incurs a loss. It is determined by dividing the total fixed costs by the contribution margin per unit. In this example, the total fixed costs were US$ 4,000,000, and the contribution margin per scan (revenue per scan minus variable costs per scan) was US$ 1,100 (US$ 1800 - US$ 700). Therefore, the breakeven point was calculated to be 3,640 units. Once the breakeven point has been determined, one can assess or project the volume of activity that will allow an organization to achieve profitability. An assessment of the historical activity at the organization showed that the hospital was able to cover all costs and break even after approximately one year and a few months.
Stakeholder Priorities and Expectations
Notably, a comprehensive breakeven analysis requires an understanding of the priorities and expectations of the stakeholders so that their concerns can be effectively addressed. The healthcare management is one of the key stakeholders for the project. The main priority of the management is the financial viability and profitability of the CT scan facility. To this end, the hospital management expects the breakeven analysis to provide information that can be used to assess the feasibility of the project and guide decision making. The finance department priority is to make sure that the financial analysis and risk assessment is accurate and can be used to provide advice and support to the management. Thus, the department expects detailed financial data and calculations to support their financial modeling and projection efforts with a significant focus on accuracy, transparency, and adherence to accounting principles.
The ...