Assume that the managers of Dominion Healthcare facility are setting the price o

ID: 2640901 • Letter: A

Question

Assume that the managers of Dominion Healthcare facility are setting the price on a new outpatient service. Here are the relevant data estimates:

Annual direct fixed costs $500,000

Variable cost per visit $5.00

Annual overhead allocation $50,000

Expected annual utilization 10,000

a. What per-visit price must be set for the service to breakeven? To earn an annual profit of $100,000?

b. Repeat Part a, but assume that the variable cost per visit is $10,

c. Return to the data given in the problem. Again repeat Part a, but assume that the direct fixed costs are $1,000,000.

a) Price per visit for break even:

BEP = Fixed cost / (Sales - VC)

10000 = (500000 + 50000) / (Sales - 5)

Sales price = 60 per visit

Price to earn profit of 100000 = 60 + 100000 / 10000

= 60 + 10 = 70 per visist

b) BEP = Fixed cost / (Sales - VC)

10000 = (500000 + 50000) / (Sales - 10)

Sales price = 65 per visit

Price to earn profit of 100000 = 65 + 100000 / 10000

= 65 + 10 = 75 per visit

c) BEP = Fixed cost / (Sales - VC)

10000 = (1000000 + 50000) / (Sales - 5)

Sales price = 110 per visit

Price to earn profit of 100000 = 110 + 100000 / 10000

= 110 + 10 = 120 per visit

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