Getwell Clinics Breakeven Analysis

The Beach Street office of Getwell Clinics specializes in the treatment of three types of patients: DRG M, DRG J, and DRG P (Getwell, 2011). Doctor Barkley has requested an analysis to determine the breakeven points for each DRG and which one is more profitable (Getwell, 2011). Break even point is the level of sales at which profit is zero. According to this definition, at break even point sales are equal to fixed cost plus variable cost (Accounting for Management, 2011). This concept is further explained by the following equation: [Break even sales = fixed cost + variable cost] (Accounting for Management, 2011).
DRG is a Diagnosis Related Group is a unit of classifying patients by diagnosis, average length of hospital stay, and therapy received; the result is used to determine how much money health care providers will be given to cover future procedures and services, primarily for inpatient care (Medical Dictionary, 2011).
The relevance of the DRG Analysis is to find a cost effective solutions in relation to new business contributions. Decision making is an essential leadership skill. This DRG Analysis gives management the ability to measure accurate cost and to help develop a financial planning strategy. To analyze the different DRG products, M, J and P, as viewed by their costs, behavior, and how these costs eventually affect the bottom-line.
One of the most useful management decision tools as viewed by the relationship of costs and profit is the cost-volume-profit analysis. This tool aids management in visualizing the impact of volume and costs on profit (Finkler, & Baker, 2007). The table below gives a much broader viewpoint of the data use to bring each portion of the analysis into perspective.
DRG Proportion Charge Variable Cost Fixed Cost Time Study
M 45% $2,000 $1,000 $850,000 3 hours
J 30% $3,000 $1,500 $800,000 4 hours
P 25% $1,200 $300 $100,000 1 hours
Joint Fixed Costs $1,560,000
Table A 100% $3,310,000

The table...