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
