Variable costs include the labor costs of the medical technicians at the lab. Fi

Question

     
   

  
      

Variable costs include the labor costs of the medical technicians at the lab. Fixed costs of $500,000 per year include building and equipment costs and the costs of administration. A basic "unit" is a routine drug test administered. A retest is given if there is concern about the results of the first test, particularly if the test indicates that the athlete has taken drugs that are on the banned drug list. Retests are not done by the laboratory that performed the basic test. A "vital" test is the laboratory's code for a high-profile case. This might be a test of a famous athlete and/or a test that might be challenged in court. The laboratory does extra work and uses expensive expert technicians to ensure the accuracy of vital drug tests. Limitless Labs is subject to a 20 percent tax rate.

Price
per Unit Variable Cost
per Unit Units Sold
per Year    Basic $ 720 $ 230 700          Retest 1,075 600 200          Vital 4,660 3,130 100       

Explanation / Answer

contribution margin per unit

Basic = 720-230 = 490

Retest = 1075-600 = 475

Vital = 4660-3130 = 1530

sales mix

Basic = 700/1000 = 70%

Retest = 20%

Vital = 10%

wt avg Cm per unit = 0.7*490+0.2*475+0.1*1530 = $591

fixed cost = 500000

break-even point = 500000/591 = 846

Basic = 0.7*846 = 592

Retest = 169

Vital = 85

break even revenue = 846*720+169*1075+85*4660 = 1186895

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