Mercy Hospital has total variable costs of 80% of total revenues and fixed costs of $20 million per year.There are 70,000 patient-days estimated for next year.What is the break-even point expressed in total revenue?
A)$100 million is the break-even point.
B)$10 million is the break-even point.
C)$12.5 million is the break-even point.
D)None of these answers is correct.

Question

Quizplus · Accepted Answer

To find the break-even point in total revenue, use the formula: Fixed Costs / (1 - Variable Cost Ratio). Here, Fixed Costs = $20 million and Variable Cost Ratio = 80% or 0.8. So, $20 million / (1 - 0.8) = $20 million / 0.2 = $100 million.

Mercy Hospital Has Total Variable Costs of 80% of Total