The MedView brochure said, "Only 45 scans per month to cover the monthly equipment rental of $18,000." The footnote at the bottom of the brochure read: *"Assumes a reimbursable fee of $475 per scan." The MedView brochure refers to a new radiology imaging system that MedView rents for $18,000 per month. A "scan" refers to one imaging session that is billed at $475 per scan. Each scan involves giving the patient a chemical injection and requires exposing and developing an X-ray negative.
a. What variable cost per scan is MedView assuming in calculating the 45-scans-per-month amount?
b. Is the MedView brochure really telling the whole financial picture? What is it omitting?
a. The brochure gives the break-even point and the question asks us to calculate variable cost per unit. Or,
Substituting in the known quantities yields:
Solving for the unknown variable cost per unit gives
Variable cost = $75/scan
b. The brochure is overlooking the additional fixed costs of office space and additional variable (or fixed) costs of the operator, utilities, maintenance, insurance and litigation, etc. Also overlooked is the required rate of return (cost of capital). Calculating the break-even point for the machine rental fee is very misleading.
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