1. Pet Energy Therapy Association (PETA) treats peoples’ pets, and has the follo

Question

1. Pet Energy Therapy Association (PETA) treats peoples’ pets, and has the following cost structure:

Charge per therapy session $100

Variable cost per therapy session $ 20

Fixed costs $100,000

They expect to perform 2,000 two hour session each year (8/day, 5 days/week, 50 weeks/year).

A. Construct PETA’s profit and loss statement. Profit/Loss $

B. How many sessions must PETA’s perform to breakeven?

C. To earn a profit of $80,000, how many sessions must they provide this year?

D. If there is one fulltime employee, fully booked, who spends one hour on each session (8 sessions per day, 40 per week, 2,000/year), what would we need to assume about the additional sessions needed to earn $100,000?

2.

St. Payne Med Center is using the step-down method to allocate costs. They have two support departments (Record Keeping and Cleaning), and two patient service departments (Eye Care and Dental Care). Some of the Record Keeping costs are allocated to Cleaning before the support department costs are allocated to patient service departments. Record Keeping costs are allocated based on the number of employees, while Cleaning costs are allocated by the number or rooms. The following data has been collected:

Support Departments Patient Revenue Departments

Record Keeping Cleaning Eye Care Dental Care

Department Costs $ 13,000 $10,000 $32,000 $60,000

Number of Employees 2 4 3 6

Number of Rooms 1 1 2 3

a. What amount of the Record Keeping is allocated to Cleaning?

b. What amount of the Record Keeping is allocated to Eye Care? $

c. What amount of the Record Keeping is allocated to Dental Care? $

d. What amount of the Cleaning is allocated to Eye Care? $

e. What amount of the Cleaning is allocated to Dental Care? $

f. After Allocation, What are Eye Care’s total costs? $

g. After Allocation, What are Dental Care’s total costs?

Explanation / Answer

(A) Profit & Loss Statement Charges per therapy session $                   100.00 Variable cost per therapy session $                      20.00 Contribution per therapy session $                      80.00 Total contribution $           160,000.00 Fixed cost $           100,000.00 Profit $             60,000.00 (B) Breakeven Point Fixed cost/Contribution margin per therapy 1250 © To achieve $80,000 Profit ,how many session must provide this year Profit=Number of Session* Contribution margin per session-Fixed cost $80,000=Number of session*$80-$1,00,000 Number of session= 2250 (D) Employee Earned $             40,000.00 Expected to earned $           100,000.00 Difference $             60,000.00 Additional session required to earn $1,00,000 3000 Support Department Patient Service Department 2 Departments Record Keeping Cleaning Eye Care Dental care Cost prior to allocation $             13,000.00 $ 10,000.00 $ 32,000.00 $      60,000.00 Allocation of record keeping department cost $             13,000.00 $    4,000.00 $    3,000.00 $        6,000.00 Aliocation of cleaning department cost $ 14,000.00 $    5,600.00 $        8,400.00 Total cost $ 40,600.00 $      74,400.00

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.