Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 22

The Cobb Clinic treats walk-in patients for various illnesses. The accounting manager has estimated that the clinic has $5,000 in monthly fixed costs in addition to a $20 cost per patient visit. If the charge is $30 per visit, how many visits per month does the clinic need to break even?

Step 1 of 2

The breakeven point is a point where predicted revenue matches the estimated full costs. It is the quantity of output sold at which full revenue equals full cost. It is a point where there is no profit or loss. It is the quantity that the company must sell to avoid losses. Breakeven point in the unit is arrived by dividing fixed costs by the contribution margin. Breakeven point in units is calculated as follows:

Where

F = Fixed cost

p = Selling price per unit

v = Variable cost per unit

Q = Number of units sold