(Use whole dollars and cents!) Assume that managers of IDC Hospital are setting
ID: 2566316 • Letter: #
Question
(Use whole dollars and cents!)
Assume that managers of IDC Hospital are setting the price on a new outpatient service.
Here are relevant data estimates:
Variable cost per visit $28.50
Annual Direct Fixed Costs $850,000
Annual Overhead Allocation $225,000
Expected Annual Utilization 76,000 visits
A. 1. What per visit price must be set for the service to breakeven? 2.To earn an annual profit of $75,000?
B. Repeat Part a, but assume that the variable cost per visit is $30.
C. Return to the original data given in the problem. Again repeat Part a, but assume that direct fixed costs are $750,000.
D. Repeat Part a assuming both a $30 variable cost and $750,000 in direct fixed costs.
Explanation / Answer
Variable cost per visit = 28.50
Annual Direct Fixed Costs = 850,000
Annual Overhead Allocation = 225,000
Expected Annual Utilization = 76,000 visits
Total fixed costs = 850,000 + 225,000 = 1,075,000
A. 1. Breakeven is a situation where there would be no profit and no loss.
Revenues - Variable costs - Fixed costs = 0
(Price * 76,000 visits) - (28.5 * 76,000 visits) - 1,075,000 = 0
(Price * 76,000 visits) - 2,166,000 - 1,075,000 = 0
(Price * 76,000 visits) = 3,241,000
Price to breakeven = 42.64 per visit
2. (Price * 76,000 visits) - (28.5 * 76,000 visits) - 1,075,000 = 75,000
(Price * 76,000 visits) - 2,166,000 - 1,075,000 = 75,000
(Price * 76,000 visits) = 3,316,000
Price to earn profit of 75,000 = 43.63 per visit
B.
1. Breakeven is a situation where there would be no profit and no loss.
Revenues - Variable costs - Fixed costs = 0
(Price * 76,000 visits) - (30 * 76,000 visits) - 1,075,000 = 0
(Price * 76,000 visits) - 2,280,000 - 1,075,000 = 0
(Price * 76,000 visits) = 3,355,000
Price to breakeven = 44.14 per visit
2. (Price * 76,000 visits) - (30 * 76,000 visits) - 1,075,000 = 75,000
(Price * 76,000 visits) - 2,280,000 - 1,075,000 = 75,000
(Price * 76,000 visits) = 3,430,000
Price to earn profit of 75,000 = 45.13 per visit
C. Annual Direct Fixed Costs = 750,000
Annual Overhead Allocation = 225,000
Total fixed costs = 750,000 + 225,000 = 975,000
1. Breakeven is a situation where there would be no profit and no loss.
Revenues - Variable costs - Fixed costs = 0
(Price * 76,000 visits) - (28.5 * 76,000 visits) - 975,000 = 0
(Price * 76,000 visits) - 2,166,000 - 975,000 = 0
(Price * 76,000 visits) = 3,141,000
Price to breakeven = 41.32 per visit
2. (Price * 76,000 visits) - (28.5 * 76,000 visits) - 975,000 = 75,000
(Price * 76,000 visits) - 2,166,000 - 975,000 = 75,000
(Price * 76,000 visits) = 3,216,000
Price to earn profit of 75,000 = 42.31 per visit
D. Annual Direct Fixed Costs = 750,000
Annual Overhead Allocation = 225,000
Total fixed costs = 750,000 + 225,000 = 975,000
1. Breakeven is a situation where there would be no profit and no loss.
Revenues - Variable costs - Fixed costs = 0
(Price * 76,000 visits) - (30 * 76,000 visits) - 975,000 = 0
(Price * 76,000 visits) - 2,280,000 - 975,000 = 0
(Price * 76,000 visits) = 3,255,000
Price to breakeven = 42.82 per visit
2. (Price * 76,000 visits) - (30 * 76,000 visits) - 975,000 = 75,000
(Price * 76,000 visits) - 2,280,000 - 975,000 = 75,000
(Price * 76,000 visits) = 3,330,000
Price to earn profit of 75,000 = 44.81 per visit
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