What is the Break-Even Point?

Projected Profit and Loss Account

The income statement contains the estimations of the revenue and costs for the proposed new walk-in-clinic. As has always been evident, the initial income projections of a business may not look promising. However, a long term analysis of the cost and revenue can be useful in revealing the viability of a business. There are several accounting tools that reveal business viability. They include balance sheet, income statement, and profit and loss statement. In this case, the profit and loss statement has been used. The accounting tool mainly contains the revenue obtained from the business as well as the costs that the business incurs ( Gapenski, 2009) . By drawing the interplay between the costs and revenue, it is possible to predict the viability of a business. 

From the Profit and Loss Statement, other tools of analysis exist. One of such tools is break-even analysis, which utilizes the components of the Profit and Loss Statement. Break-even analysis is useful in determining the performance of a business in terms of costs ( Penner, 2016) . As the business intends to commence, there must be the minimum number of units that the business must sell to meet it costs. In the case of the clinic, there must be the minimum number of visits that the clinic must have to be able to sustain itself. 

For instance, the tool determines the point at which total costs equals total revenue. Break-even analysis can help in adjusting pricing. The sustainability of the clinic will only occur if the revenue that the business will collect from the visits meets the cost of production. Break-even analysis does not necessarily take the required profit into consideration. 

Here is the formula for determining the Break-even point of a business 

Calculation: Determining Break-Even Point 

Break-Even Point = Fixed cost/(price per unit-variable cost) 

Break-Even Point for this case, 

In this case , total fixed cost = $257500 

Price per unit = $400000/10000 

=$40 

Variable cost=180000/10000 

=$18 

Therefore, Break-Even Point for the case is 257500/(40-18) 

=11704.55 units 

Which is approximately =11705 units 

The calculation implies that, for the clinic to meet its cost, it must have 11705 visits so as to make the commensurate revenue. 

Calculation 3 What is the Break-even Point for making $100000? 

To get a profit of $100000, the clinic must make additional sales worth $100000 

In that case, the (price per unit X k) –(variable cost X k) where k is the number of units 

40k-18k=100000 

K=4545.45 units which is a 

The Break-even Point = 11704.55 + 4545.45 = 16250 units 

Therefore, for the business to make a profit of $100000, it must have 16250 visits. 

Recommendation 

I accept the project. Based on the analysis, the project is viable. Normally, a new project costs higher during the initial period. That could be due to the establishment of fixed utilities. With a break-even point of 11704.55 in the first year, the business can make good profits from the second year. With the tool of analysis, the organization can adjust pricing based on the demand for the clinical services ( Langabeer, 2008) . That is due to the fact that Break-even Analysis is a planning tool that can be used to project pricing. 

References 

Gapenski, L. C. (2009).  Fundamentals of healthcare finance . Health Administration Press. 

Langabeer, J. R. (2008).  Health care operations management: a quantitative approach to business and logistics . Jones & Bartlett Learning. 

Penner, S. J. (2016).  Economics and financial management for nurses and nurse leaders . Springer Publishing Company.