Consider the following data for Midtown Clinic: Answer the following for Midtown

Question

Consider the following data for Midtown Clinic:

Answer the following for Midtown:

a) What should the price be for a basic exam, assuming that the goal is to cover only variable and direct fixed costs?

b) What should be the price for an advanced exams, assuming that the goal is to cover only variable and direct fixed costs?

c) Now assume that Midtown must allocate $25,000 in overhead to the three services above. Assume that the allocation of overhead costs to each service is made on the basis of number of visits. Calculate the new price for therapy sessions.

Service Variable cost Annual direct fixed costs Annual number of visits Basic exam $3 $25,000 5,000 Advanced exam $10 $50,000 2,000 Therapy session $20 $10,000 500

Explanation / Answer

Ans a) Basic examination: 3 x 5000 + 25000 = 40000

Cost Per person = 40000 / 5000 = $8

Ans b) Advanced examination: 10 x 2000 + 50000 = 70000

Cost Per person = 70000 / 2000 = $35

Ans c) Therapy sessions: 20 x 500 + 10000 = 20000

Cost Per person = 20000 / 500 = $40

The total no of visits = 5000 + 2000 + 500 = 7500

$25000 / 7500 = $3.33 per visit allocation

So new price of therapy sessions is = 40 - 3.33 = $36.67

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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