I need answer to these questions: 1. Assume that manager of a business are setti

Question

I need answer to these questions:

1. Assume that manager of a business are setting the price on a new service. Relevant data estimates: variable cost per visit: $5.00, Annual direct fixed costs: $500,000, Annualy overhead allocation: $50,000, Expected annual utilization 10,000 visitis. A. What per visit price must be set for the service to break even? To earn an annual profit of $100,000? B. Repeat at a cost per visit is $10. C. Repeat is fixed cost is $1,000,000. D. Assuming both a $10 variable cost and $1,000,000 in direct fixed cost.

Explanation / Answer

Break even is a point of no profit and no loss Price per unit must be enough to cover cost incurred for production of unit. Price per unit=VC per unit+Profit+ Fixed Cost

VC Per Visit=5 Total Fixed Cost 500000 Annual Utilization= 10,000 Units

Price Per Vist=??

1)Subsitituting the values,we get price per visit as 55(Fixed cost of 50 per visit + VC of 5 per visit + 0 Profit)

2)To earn an annual profiit of 100000,we get price per visit as 65(Fixed cost of 50 per visit + VC of 5 per visit + 10 Profit)

3)At a VC of 10 per visit,we get price per unit as 70(Fixed cost of 50 per visit + VC of 10 per visit + 10 Profit)

4)At a VC of 10 per visit,we get price per unit as 60(Fixed cost of 50 per visit + VC of 10 per visit + 0 Profit)

5)At a FC of 1000000 ,we get price per unit as 105(Fixed cost of 100 per visit + VC of 5 per visit + 0 Profit)

6)At a FC of 1000000 ,we get price per unit as 115(Fixed cost of 100 per visit + VC of 5 per visit + 10 Profit)

7)At a FC of 1000000 & 10 VC,we get price per unit as 110(Fixed cost of 100 per visit + VC of 10 per visit + 0 Profit)

8)At a FC of 1000000 & 10 VC,we get price per unit as 120(Fixed cost of 100 per visit + VC of 10 per visit + 10 Profit)

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