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Carlsbad Home Care Case Solution

Solution Id Length Case Author Case Publisher
1288 646 Words (3 Pages) David W. Young The Crimson Group : TCG107
This solution includes: A Word File A Word File and An Excel File An Excel File

The fixed costs of the business are those costs that do not affect or remain unchanged by the volume, turnover or the number of units sold by the business. In the case of Carlsbad Home Care, the idea is to identify the costs that can increase or decrease with the change in the number of visits produced by the company. First of all, the salary for Director, Assistant Director, and Controller is a fixed cost which amounts to be $165,140. The reason for categorizing this as fixed cost is that it remains unchanged irrespective of the level of business activity or the number of visits produced. Automobile Operation & Insurance is also a fixed cost as it incurs periodically on a regular basis. These costs amount to be $73,600. The other fixed costs that are being identified in this case are Space Occupancy Cost, Office Cost (Telegraph, Postage, Stationary) and Other General Cost (Depreciation, Insurance, Legal) which are $34,600, $25,312 and $35,720 respectively. The sum of the fixed cost comes out to be $334,432.

Following questions are answered in this case study solution

  1. Identify the fixed and variable costs.

  2. What is the breakeven point?

  3. What assumptions were necessary in answering questions 1 and 2?

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Case Analysis for Carlsbad Home Care Case Solution

Variable Costs

The variable cost in a business change about a business activity or the number of units sold. Thus, more units are sold, the more variable cost will be incurred. In this case, the costs that are influenced by the number of visits provided include salaries that are related to medical and the medical and nursing salaries as mentioned in the case. The salaries of Nurses, Psychologists, Social Workers, and Physical therapists are $105,920, $56,000, $77,000 and $90,334 respectively. The medical and nursing supplies which amount to be $14,800 is also part of the variable cost. The other variable costs that are being identified in this case are Automobile allowance for staff and purchase services which are $40,000 and $4,700 respectively. The reason for considering automobile allowance for staff as the variable cost is that it is related to the mileage incurred by the medical staff in making the visit and hence change by the number of visits. The sum of all the variable cost comes out to be $388,754.

2. What is the breakeven point?

Breakeven Point

The breakeven point is the number of visits required to cover all the variable costs and fixed costs. It is calculated by dividing the total fixed cost with contribution margin which is the difference between the price per visit and variable cost per visit. The price per visit is $110. In order to calculate the variable cost per visit, the total variable cost is divided by the total number of a visit made which are 6,384. Exhibit 1 shows the calculation of the breakeven point and variable cost per visit. The exhibit shows that the breakeven point comes out to be 6,811. Thus in order to cover all the variable and fixed expenses, Carlsbad needs to make 6,811 visits. Lastly, the general price level is assumed to be constant.

Exhibit 3

Break-Even Point

 Fixed Cost

334,432

 Variable Cost

388,754

 Total Visits

6,384

 Variable Cost Per Visit

 $60.90

 Price per Visit

 $110

 Breakeven Point [FC/(P-VC)]

6,811

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