The break-even analysis
Sample Solution
Break-Even Analysis for UMHCBS
Understanding the Problem:
To perform a break-even analysis for UMHCBS, we need to determine the number of seniors who would need to have a full monthly membership and pay for breakfast and lunch to cover the center's monthly expenses.
Key Information Needed:
- Fixed Costs: These are costs that remain constant regardless of the number of seniors served. Examples include rent, utilities, staff salaries, and insurance.
- Variable Costs: These are costs that vary with the number of seniors served. Examples include food costs, cleaning supplies, and disposable items.
- Revenue per Senior: This is the amount of revenue generated by each senior member. It should include the monthly membership fee and the cost of meals (breakfast and lunch).
Break-Even Formula:
Break-Even Point = Fixed Costs / (Revenue per Senior - Variable Cost per Senior)
Steps:
- Gather Data: Collect data on the fixed costs, variable costs, and revenue per senior.
- Calculate Contribution Margin: Subtract the variable cost per senior from the revenue per senior.
- Apply the Formula: Use the break-even formula to calculate the number of seniors needed to cover the fixed costs.
Full Answer Section
Example:
Let's assume the following data:
- Fixed Costs: $10,000 per month
- Variable Cost per Senior: $5 per day (for breakfast and lunch)
- Revenue per Senior: $100 per month (including membership fee and meals)
Calculation:
Contribution Margin = $100 - ($5 * 30 days) = $50 Break-Even Point = $10,000 / $50 = 200 seniors
Interpretation:
UMHCBS would need to have 200 seniors with full monthly memberships and paying for breakfast and lunch to cover its monthly expenses.
Additional Considerations:
- Demand: Ensure that the demand for the center's services is sufficient to attract and retain at least 200 seniors.
- Pricing: Consider adjusting the membership fees or meal prices if the break-even point is too high.
- Efficiency: Explore ways to reduce costs or increase revenue to improve profitability.
- Contingency Planning: Develop a plan to address potential fluctuations in costs or revenue.
By conducting a thorough break-even analysis, UMHCBS can make informed decisions about its pricing, operations, and financial sustainability.