Capital Project Are Very Important Case Study

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The estimated total variable costs for the one-year period were $52,000.

We now use the Break-Even Analysis formula of: Q = FC / (P -- VC), to determine the basic standards for generating a profit. Inside the formula, Q stood for the quantity of service visits required to break even. While, at the same time: FC denoted the fixed cost for the project, P is the prices charged for the various services and VC is the variable cost per visit. At which point, we divided the total variable costs by: expected number of visits ($52,000 / 4000). Once this took place, we came up with a VC of $13. Entering all the values into the formula gave us a result for Q. Of 8,064. Thus, 8,064 visits are required for the hospital to break even. In order to generate any kind of operating profits, they must go beyond this number every single year.

This was the point that IMS had to decide, whether the community (where the new facility is being proposed) has enough population to: make required number of visits and if they would be able to easily obtain these objectives every year. As a result, taking the 22 working days per month, meant the facility would operate 264 days out the year and that 23 visits per day were needed for them to break even (this was determined by dividing 8,064 into 262).

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This calculation also helped in estimating the number of physicians that would be required to: handle the daily visits at the proposed facility.

Clearly, the break-even analysis of the capital project helped the management of IMS in: their financial assessment and the economic feasibility study of the hospital. As they estimated that the required visits per year would be: more than enough for them to be able to break even......

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