a) A nursing home operator bases her income and costs on the number of rooms she has filled. Each room has an income earning potential of $350 per month. Variable costs are food, materials, and supplies, plus nursing care. Food, materials and supplies average $150 per month per patient while nursing care averages $4 per day per patient. By using a corps of permanent nurses plus nurses on monthly call, the manager can keep nursing costs quite variable. The pool of fixed costs is $5,000 per month. The home has 100 rooms and currently 75 of them are occupied.
i. What is the monthly contribution to profit and overhead? (3 marks)
ii. At what occupancy level does the manager break even? (5 marks)
iii. What would her profit be at 90 percent occupancy? (2 marks)
b) “The break-even charts are derived from break-even point which occurs when the two curves intersect”. Justify the significance of break-even analysis under the short and long-run trends in Operations Management with practical industrial/manufacturing examples. (15 marks)
