Assume that the managers of Fort Winston Hospital are setting the price on a new

Question

Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are relevant data estimates Variable cost per visit $ 5.00 Annual direct fixed costs $500,000 Annual overhead allocation $ 50,000 Expected annual utilization 10,000 a. What per-visit price must be set for the service to break even? 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 direct fixed costs are $1,000,000 d .Repeat Part a assuming both $10 in variable cost and $1,000,000 in direct fixed costs

Explanation / Answer

Hi, Please find the answers as follows: Part A: Variable Cost/Unit 50,000 Fixed Costs 500,000 Annual Overhead 50,000 Total Costs 600,000 Gross Sales Revenue 10,000X = 600,000 X = 60 should be the selling price to breakeven Part A: Annual Profit of 100,000 Variable Cost/Unit 50,000 Fixed Costs 500,000 Annual Overhead 50,000 Total Costs 600,000 Expected Profit 100,000 Gross Sales Revenue 600,000 + 100,000 = $700,000 10,000X = 700,000 X = 70 should be the selling price to earn profit of 100,000 Part B: Variable Cost/Unit 100,000 Fixed Costs 500,000 Annual Overhead 50,000 Total Costs 650,000 Gross Revenue 10,000X = 650,000 X = 65 should be the selling price to breakeven Part C: Variable Cost/Unit 50,000 Fixed Costs 1,000,000 Annual Overhead 50,000 Total Costs 11,00,000 Gross Sales Revenue 10,000X = 11,00,000 X = 110 should be the selling price to breakeven Part D: Variable Cost/Unit 100,000 Fixed Costs 1,000,000 Annual Overhead 50,000 Total Costs 11,50,000 Gross Sales Revenue 10,000X = 11,50,000 X = 115 should be the selling price to breakeven Thanks, Aman

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