Medical Device Tax

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Don’t let the Medical Device Tax get
you down!

Yes, a 2.3% hit to your top-line revenue is no fun.

But instead of reacting by cutting costs, let’s see what an increase in Throughput would do to your bottom-line:

Throughput is simply Revenue minus Total Variable Costs (materials, outside services, commissions).

The examples below show how improving your company’s Throughput – assuming labor and overhead are relatively constant – can have a huge positive impact to your profitability.  Note also that the increase in Revenue is not necessarily an increase in “sales”, rather it is an increased in the amount of revenue your company is able to recognize due to increased shipments (Throughput) of an existing backlog:

Current PerformanceIncrease in Throughput 5%Increase in Throughput 10%Increase in Throughput 25%Increase in Throughput 40%
Revenue$ 100,000$105,000$110,000$125,000$140,000
Raw Material Costs$40,000$42,000$44,000$50,000$56,000
Throughput$60,000$63,000$66,000$75,000$84,000
Direct Labor$12,000$12,000$12,000$12,000$12,000
All Other Operating Expenses$38,000$38,000$38,000$38,000$38,000
Medical Device Tax$2,300$2,415$2,530$2,875$3,220
Profit (before MD Tax)$10,000$13,000$16,000$25,000$34,000
% increase in profit0%30%60%150%240%
MD Tax as % of Profit23%19%16%12%9%

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