Discuss the importance of determination of fixed and variable costs for breakeven and profitability analysis. Use...

Discuss the importance of determination of fixed and variable costs for breakeven and profitability analysis. Use the health care institution as an example for analysis to support your points

Expert Solution

The break even point is when the firm is able to recover the fixed cost incurred. This recovery is in the form of contribution to the firm which is calculated as sales - variable cost

Formula for break even point = Fixed cost / Sales - Variable Cost.

Hence to arrive at the break even point and profitability determination of fixed and variable cost is very important.

Healthcare Institutions have a huge amount of fixed cost which include salaries of the employee, building maintenance, rent, utlities, equipment. The hospitals have to incur the fixed cost regardless of the patient inflow to maintain the standard of the treatment provided to patients. Since fixed costs form such ahuge part of the healthcare institutions, they have to keep a track of the fixed cost in order to arrive at a break even point. it helps in determining what they can charge a patient in order to recover the fixed cost.

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