# How Do I Determine the Break-Even Factor for Medical Equipment?

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When purchasing new medical equipment, it is important to figure out when you will make back the money on the equipment---your break-even point. You will need to compare the price of the medical equipment to the cash flow from its use. You can also perform a break-even analysis on the equipment on a year-to-year basis. This will tell you the number of times you will need to use the equipment to not lose money on it for the year.

## Cost Recovery Period

Determine the annual cash flow you expect from the equipment. For example, a doctor may estimate that a new machine will bring in an additional \$3,000 a year in revenue.

Determine the cost of the new equipment. Let's suppose that the doctor's equipment cost \$9,000.

Divide the cost of the equipment by the annual cash flow. In this example, \$9,000 divided by \$3,000 a year equals three years. It will take the doctor three years to recover the cost of the equipment.

## Break Even

Determine the fixed costs for the machine on average, the per use variable cost and the per use sales price. For example, each year a doctor needs to make \$10,000 in payments on a machine. In addition, each time he runs the machine, he incurs a variable cost of \$500. The doctor charges \$3,000 each time he uses the machine on a patient.

Subtract the average variable cost per use from the per use sales price. In this example, \$3,000 minus \$500 equals \$2,500.

Divide the annual fixed costs by the number calculated in Step 2. In this example, \$10,000 divided by \$2,500 equals 4. Therefore, the doctor would need to use the machine on four patients in order to recover his annual fixed and variable costs on the machine.

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