Deadwood Hospital has overall variable costs of 50% of total revenues and fixed costs of $40 million per year.There are 40,000 patient-days estimated for next year.The break-even point expressed in total revenue is _____.
A)$80 million
B)$40 million
C)$10 million
D)none of these answers is correct

Question

Quizplus · Accepted Answer

The formula for break-even point (BEP) in units is:

BEP(units) = Fixed Costs / (Price per unit - Variable Cost per unit)

We need to express the BEP in total revenue so we need to multiply the BEP in units by the Price per unit:

Price per unit = Total revenue / Number of patient-days

Variable Cost per unit = 50% of Total revenue / Number of patient-days

Plugging in the numbers:

Variable Cost per unit = 0.5 * Total revenue / 40,000

Price per unit = Total revenue / 40,000

BEP(units) = $40 million / (Total revenue / 40,000 - 0.5 * Total revenue / 40,000)

Simplifying:

BEP(units) = $40 million / (0.5 * Total revenue / 40,000)

BEP(units) = 80,000

BEP(total revenue) = BEP(units) * Price per unit

BEP(total revenue) = 80,000 * (Total revenue / 40,000)

BEP(total revenue) = $80 million

Therefore, the break-even point expressed in total revenue is $80 million, which corresponds to answer choice A.

Deadwood Hospital Has Overall Variable Costs of 50% of Total