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Business Finance Healthcare Finance: An Introduction to Accounting and Financial Management

To state : The equation of break even. Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required. Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to evaluate the net income generated in a particular period. Contribution is money earned from sales or rendering services less the variable costs/expenses incurred to perform such business operations, wherein Revenue means the amount earned by the company on sale of goods or rendering services to the consumers. Variable expenses refer to the expenses that vary with the change in level of production. Higher the production level, higher will be the variable expenses and lower the production level, lower will be the variable expenses. Contribution margin can be computed using the following formula: Contribution margin = Revenue − Variable expenses Now, fixed costs refer to the costs that are fixed and don’t vary with the level of production. Higher the production level, lower will be per unit fixed expenses and lower the production level, higher will be per unit fixed expenses. Break even volume is the volume of goods/units that should be produced for a firm to maintain ‘no profit, no loss’ situation (i.e., situation of no gain and no loss). It can be computed by dividing fixed costs with the contribution margin. Following is the equation for volume breakeven: Breakeven ( volume ) = FC CM Breakeven ( volume ) = FC ( R – VC ) wherein, FC = Total Fixed costs VC = Variable costs per unit R = Revenue per unit CM = Contribution margin

To state : The equation of break even. Introduction: The users of financial statements review the financial statements of the company and perform appropriate analysis to take appropriate decisions, whenever required. Income Statement’ shows the revenue earned and expenses incurred over a period of time. It is used to evaluate the net income generated in a particular period. Contribution is money earned from sales or rendering services less the variable costs/expenses incurred to perform such business operations, wherein Revenue means the amount earned by the company on sale of goods or rendering services to the consumers. Variable expenses refer to the expenses that vary with the change in level of production. Higher the production level, higher will be the variable expenses and lower the production level, lower will be the variable expenses. Contribution margin can be computed using the following formula: Contribution margin = Revenue − Variable expenses Now, fixed costs refer to the costs that are fixed and don’t vary with the level of production. Higher the production level, lower will be per unit fixed expenses and lower the production level, higher will be per unit fixed expenses. Break even volume is the volume of goods/units that should be produced for a firm to maintain ‘no profit, no loss’ situation (i.e., situation of no gain and no loss). It can be computed by dividing fixed costs with the contribution margin. Following is the equation for volume breakeven: Breakeven ( volume ) = FC CM Breakeven ( volume ) = FC ( R – VC ) wherein, FC = Total Fixed costs VC = Variable costs per unit R = Revenue per unit CM = Contribution margin

Solution Summary: The author explains the equation of breakeven, which is used to evaluate the net income generated in a particular period.

Healthcare Finance: An Introduction to Accounting and Financial Management

Healthcare Finance: An Introduction to Accounting and Financial Management

6th Edition

ISBN: 9781567937411

Author: Louis C. Gapenski, Kristin L. Reiter

Publisher: Health Administration Press

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Healthcare Finance: An Introduction to Accounting and Financial Management

Ch. 5.1 - Prob. 1.1STQ Ch. 5.1 - Prob. 1.2STQ Ch. 5.1 - Prob. 1.3STQ Ch. 5.1 - Prob. 2.1STQ Ch. 5.1 - Prob. 2.2STQ Ch. 5.1 - Prob. 2.3STQ Ch. 5.1 - Prob. 2.4STQ Ch. 5 - Prob. 1.1STQ Ch. 5 - Prob. 1.2STQ Ch. 5 - Prob. 2.1STQ

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