INDIAN INSTITUTE OF MANAGEMENT, JAMMU

HMA Project

Submitted to : Dr. Praveen Kumar

Title : CVP Analysis of SMVD Narayana Hospital, Katra

Submitted by :

Kivinoto A Achumi (HAHM22005)

Divyansh (HAHM22010)
Jigyasha (HAHM22019)
Gurwinder Singh (HAHM22028)
Babu Prashanth (HAHM22029)
Vaibhav Mehnde (HAHM22049)
CVP analysis is a tool used by businesses, including hospitals, to understand the relationship
between costs, volume, and profit. The analysis can help hospitals determine the level of
activity needed to achieve a desired profit level and identify areas where they can reduce
costs or increase revenue to improve profitability.

To conduct a CVP analysis for a hospital, the following factors would need to be considered:
Revenue: Hospitals generate revenue from multiple sources such as inpatient and outpatient
services, diagnostic services, pharmacy sales, and other ancillary services. The revenue
generated by each of these services should be considered separately when conducting a CVP
analysis.

 Variable Costs: Variable costs are costs that change in proportion to the level of
activity. For a hospital, examples of variable costs include medical supplies,
medication costs, and staff salaries.

 Fixed Costs: Fixed costs are costs that do not change with the level of activity. For a
hospital, examples of fixed costs include rent, utilities, and administrative salaries.

 Breakeven Point: The breakeven point is the level of activity at which the hospital's
revenue is equal to its total costs, including both variable and fixed costs.

 Contribution Margin: The contribution margin is the difference between the revenue
generated by a service and its variable costs. It represents the amount of revenue
available to cover fixed costs and contribute to profits.

By analysing these factors, hospitals can determine their breakeven point and contribution
margin for each service line. They can then use this information to make decisions about
pricing, staffing, and resource allocation to improve profitability.

Overall, a CVP analysis can help hospitals make informed decisions about their operations
and finances. By understanding the relationship between costs, volume, and profit, hospitals
can identify areas where they can reduce costs or increase revenue to improve their financial
performance.
 Cost Sheet for SMVD Narayana Hospital
Item INR (Rs.)
Revenue
 Inpatient Services 68,746,000
 Outpatient Services 48,986,000
 Pharmacy 25,045,000
 Other Revenue 650,000
Total Revenue 14,34,27,000
Direct Costs
 Medical Supplies and Equipment 18, 978,000
 Staff Wages and Benefits 72,765,000
 Maintenance and Utilities 3,875,000
 Other Direct Costs 540,000
Total Direct Costs 96,158,000
Indirect Costs
 Administrative and General Expenses 15,650,000
 Marketing and Advertising 135,000
 IT and Software 458,000
 Other Indirect Costs 108,000
Total Indirect Costs 16,351,000
Total Costs 112,509,000
Operating Profit/Loss 30,918,000
Total Fixed Cost -28,291,000
Total Variable Cost 124,449,000
Breakeven point 1.11

Total Cost = Total Fixed Cost + Total Variable Cost

Where Total Variable Cost is calculated as:

Total Variable Cost = (Variable Cost per unit) x (Total units)

The Breakeven point can be calculated as:

Breakeven Point = Total Fixed Cost / (Price per unit - Variable Cost per unit)

Using the information we have in cost sheet, we can calculate the total fixed cost and total
variable cost as follows:
Total Direct Costs = Variable Costs + Total Fixed Costs
Therefore, Total Fixed Costs = Total Direct Costs - Total Variable Costs

Total Direct Costs = INR 96,158,000

Total Variable Costs = INR 68,746,000 + INR 48,986,000 + INR 25,045,000 + INR
650,000 - INR 18,978,000 = INR 124,449,000

Total Fixed Costs = INR 96,158,000 - INR 124,449,000 = INR -28,291,000

Since the total fixed costs are negative, it indicates that the hospital is not incurring any fixed
costs, and all the costs incurred are variable costs.

Breakeven Point = INR 0 / ((INR 68,746,000 + INR 48,986,000 + INR 25,045,000 + INR
650,000)/(INR 96,158,000)) = 1.11

Therefore, the breakeven point for the hospital is 1.11 times the total direct costs or INR
1.11 for every INR 1 of total direct costs.

Interpretation:
Since SMVD Narayana Hospital is one of the most charitable hospitals, most of the
equipment being used in hospital were procured under CSR activities of J&K bank and other
corporate giants in the state hence lowering the expenses for hospital and resulting in higher
profit.