Question 7.1 that the managers of Fort Winston Hospital are entiong a new outpat

Question

Question 7.1

that the managers of Fort Winston Hospital are entiong a new outpatient service. Here are relevant dana on Vaniable cost per visit Annual direct fixed costs Annual overhead allocation Expected annual utilization (visits) simate S 5.00 $500,000 50,000 10,000 , What per visit price must be set for the service to break cet carn an annual profit of $100,000 b Repeat Part a, but assume that the variable cost per vist c Return to the data given in the problem. Again repest Part assume that direct fixed costs are $1,000,000 d. Repeat Part a assuming both $10 in variable cost and $1,000.000 2 The audiology department at Randall Clinic offers many servi huee most common, along with cost in direct fixed costs

Explanation / Answer

a. Let the per visit price be P.

Contribution Margin per visit = ( P - 5)

At break-even, Total contribution margin = Total fixed cost

Therefore, 10,000 ( P -5) - $ 550,000 = 0

or P - 5 = 55

or P = $ 60

To earn an annual profit of $ 100,000:

Let the per visit price be P again.

10,000 ( P - 5) - 550,000 = 100,000

or P = $ 70

b. Variable cost : $ 10 per visit.

Per visit price for break-even :

10,000 ( P - 10) - 550,000 = 0

P = $ 65

Per vist price to earn an annual profit of $ 100,000:

10,000 ( P - 10) - 550,000 = 100,000.

P = $ 75.

c. Price per visit for break-even :

10,000 ( P - 5) - 1,000,000 - 50,000 = 0

or P = $ 110

To earn an annual profit of $ 100,000, 10,000 ( P - 5) - 1,000,000 - 50,000 = 100,000

P = $ 120.

d. To break-even, 10,000 ( P - 10) - 1,000,000 - 50,000 = 0

P = $ 115

To earn an annual profit of $ 100,000, 10,000 ( P - 10) - 1,000,000 - 50,000 = 100,000

P = $ 125

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