The purpose of doing a break-even-point analysis (BEP) is to determine the point at which the cost for the volume of tests equals the revenue generated. This volume of tests is called the break-even-point. BEP can be calculated for individual tests, specific testing instruments, a cost center, or the entire laboratory. The idea is that if the BEP is not reached in a fiscal year or well along in the fiscal year operation adjustments are probably in order. The sooner the BEP is reached, the more financially viable a test, instrument, or cost center becomes.
BEP analysis requires that testing expenses be divided into fixed and variable costs. The net income contribution in this equation is set at zero because when costs equal revenues, this will be the net income contribution.
Break-Even-Point (BEP) Equation
r = Revenue per reportable test
V = Variable cost per reportable test
F = Total fixed costs
C = Net income contribution (set at zero)