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Break Even Analysis in Cost Accounting

Introduction

Break even analysis is an important tool in economics and business used for cost accounting. It explains a point where the total revenue and total cost are the same. That is, although there is no profit or loss, the opportunity cost takes care of and is expecting a profit from then onwards (Cafferky & Wentworth, 2010, p. 22). Break even is important in discovering the startup cost, which will find out the sales revenue required to cater for the business expenditures.

Projected Profit

With the current volume level, the profit remains -5.8% ($ 3,173). This indicates that the walk-in-clinic will shut down even before year ends. The main cause of this situation is the current and incremental costs are more than to the total net monthly revenues (Shim & Siegel, 2000, p. 15). To fix the losses, the clinic should try to cut the fixed costs by outsourcing the services of physicians, try to cover much in a short period of education, watch on power consumption and other expenses, reduce variable costs by finding a new affordable supplier or increase their current fee they charge to the patient and other services.

Break Even Without Market Program

About twelve to fifteen more visits a day are required for breaking even without a new market plan. With the net revenue per visit at $40.66 and more daily visits from fifty-five to sixty per month, the total revenue increases more compared to the current and incremental costs. The more the visits, the more fees will to pay thus an increase in revenue. Therefore, the month will register a profit of $3,573 (4.9%).

Break Even With Market Plan

In a new market strategy, the visits required to break even will be about twenty a day. This is because of the need to hire more medical and administrative staff to cater for the increase in number of patients. In addition, the clinic needs expansion to accommodate the ever-increasing volume and specialized occupational health services (OHS). The new marketing strategy will include advertisements costs for internet, radio, television, as well as brochures. This incremental costs cause the breakeven point to go further as compared to no marketing strategy.

Effect of the New Program

With the new program, the clinic will start making profit after fifteen additional visits. At this point, the incremental monthly revenue will exceed the increased monthly costs thus resulting to a profit from then onwards. The cause of this delay is the additional costs needed (administrative supplies like clinic recording sheets or files) to cater for the increasing volume of patients.

Marketing Plan vs No marketing plan

A marketing plan illustrates considerably how to offer unique and friendly services. To set a business into the right momentum, an effective plan must be put in place for its success. This is the path to a successful goal. It allows the entrepreneur define his or a client. It will make customer want to get back the value for their money.

Without a marketing plan, one is likely to start incurring losses in future because he will have failed to work on the interests of customers. No market plan can make the business place seem congested even to employees thus killing the morale of customers to associate with it.

Conclusion

A working business has an effective plan and strategy in place, thus the business grows. No work plan results in losses thereafter leading to shutting the business. Break even analysis is the route of success.

References

Cafferky, M. E., & Wentworth, J. (2010). Break Even analysis: The definitive guide to cost-volume-profit analysis (2nd ed.). New York: Business Expert Press.

Shim, J. K., & Siegel, J. G. (2000). Modern cost management & analysis (2nd ed.). Hauppauge, NY: Barron’s Educational Series.

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Essay4Business. (2022, April 13). Break Even Analysis in Cost Accounting. Retrieved from https://essay4business.com/break-even-analysis-in-cost-accounting/

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Essay4Business. 2022. "Break Even Analysis in Cost Accounting." April 13, 2022. https://essay4business.com/break-even-analysis-in-cost-accounting/.

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