Break even

Breakeven is the point at which the company is not generating all returns or losses. This is the point at which the company is generating just the direct of revenue which compensates for both the variable cost and the fixed cost. Variable be fluctuate with the level of patients arriving for the scans. The greater the come of incoming patients for MRI scans, the greater the variable costs. tho the fixed costs, which involve the lease fees, which are periodic, allow for not vary regardless of the number of patients coming in for the scan.Therefore, time greater number of patients agency greater variable costs, it in addition mean that in that respect will be greater scope for the company to intersect the fixed costs. That is of course given the fact that the price is higher than per unit variable cost. That is the case under the present scenario. The price that severally guest pays for an MRI scan is $2100 while the cost that the company has to incur for for each one scan is $1200. The difference between the price and the variable cost goes towards cover song the fixed costs. That is why the breakeven equation stands as it does.As mentioned before, breakeven is the point at which there are neither clams nor loses for the company. As a result profit at this point can be considered as zero. The level of gross sales at which profit is zero means that under the present circumstances, the number of MRI scans that the hospital has per chance variableed cover for not sole(prenominal) the variable costs but fixed costs as well. In the present scenario the payment that the hospital receives in return for performing the MRI scan is $2100 which is frequently higher than the cost of performing that scan which is $1200. Therefore, the company will fork up no problem in covering for the variable costs.What the hospital has to difficulty about is covering the fixed cost. Therefore the objective here is to regulate the number of patients at which the di fference between number revenue and total variable costs equals the fixed costs. The equation generates the 100 patients that R form must scan each month to cover not only the variable costs of performing each scan but also the fixed costs of operating the MRI scan equipment. 100 patients manoeuvre the minimum number of patients that R Squared must scan each month in order to be able to stay in business, i.e. get back both the variable cost and the fixed costs. However General Hospital is ensuring 125 patients each month. This is very good for R Squared because at that number of patients, the hospital will be generating a level of profit that is higher than the $10000 calculated in caput 2. Therefore R Squared will contract this contract. Question 4 If R Squared does not accept this contract it could lead an accordance with General Hospital whereby part of the costs for operating the equipment could be borne by General Hospital.This will reduce both the variables costs and th e fixed costs for R Squared. In that scenario the management of the company could afford to accommodate a lower number of patients as it has to cover for a lower level of costs. Of course since 125 patients on a monthly basis means nearly $22500 of profits, there is no reason for the management not to accept this contract. However the management could be targeting a higher level of profits from its MRI division. In that case, a strategic alliance in the form of cost sharing as mentioned before could help both parties reach an agreement.