Cash flow/Break even analysis/Cost of Dispensing

What is a break-even analysis?

- the point wherein no profit or loss is realized by the enterprise.

What is the break-even analysis used to determine?

--how much in additional sales are necessary to cover a new expenditure or program -Determine how much in additional sales are necessary to reach a Net Profit Target

What is considered cash in?

-Cash Sales -Accounts Receivable

What are direct costs of dispensing?

-Cost associated with providing prescription services which include: *Salaries associated with the provision of Rx activities *Rx packaging *Third party transmission fees.

What are example of indirect costs of dispensing

-Costs that are shared within the business which include: *Salaries allocated for other services within the business *Cost proportionate to the size of the Rx department *Costs proportionate to the number of Rx's filled

What is considered cash out?

-Inventory purchases -Expenses -Purchases of Fixed Assets

What is the cost of dispensing?

-The average dollar amount it costs for a pharmacy to dispense a prescription

What a two reasons why it is important to know the "cost of dispensing"

-to establish an adequate pricing structure -to evaluate the terms of third party insurance contracts.

What are the steps of Break-Even Analysis?

1. Gather data from Income Statement 2. Classify expenses 3. Determine Margin Income Ratio (MIR) per dollar of revenue earned. 4. Determine the "break-even" point in terms of money and/or time.

What is the BEP in time equation

BEP in sales/total sales

What is the break even sales equation?

BES= Fixed expenses/MIR

T/F MIR is not needed to cover fixed expenses and provide for profit.

False. Good MIR is needed.

T/F. Variable expenses include manager/owner's wages, rent, utilities, advertising, security, "other" expenses

False. These are fixed expenses. Variable expenses are computer support, Rx packaging, employee wages, credit card fees, delivery fees

What is the break even equation?

Sales-COGS= GPM-VE-FE= Net Profit

What is the MIR equation?

Sales-COGS=GPM then use this answer in the equation below %GPM-%VE= MIR

What is the equation for cost of dispensing?

Total expenses/ # Rx's dispensed.

T/F. Direct and indirect costs must be taken into account when determining "cost of dispensing"

True

T/F. MIR measures that portion of revenue that is left over after paying for variable expenses that is available to pay for fixed expenses

True

T/F. Margin Income Ratio (MIR) is known as the operating Margain

True

What is to be gathered from the Income statement

sales, cost of goods, gross profit margin