$4000 booo d) A manufacturer sells belts for $14 per unit. The fixed costs are $
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$4000 booo d) A manufacturer sells belts for $14 per unit. The fixed costs are $1600 per month, and w variable cost per unit is $10. What is the cost function? An eye surgery facility that charges $2400 per operation and averages 60 operations a month. The business pays $360,000 annually for its facilities and equipment and pays $540,000 in salaries annually. Each surgery uses $860 worth of medical supplies and drugs. Each patient gets a bouquet of flowers post- surgery/($30) and on average, they spend $10 per patient on glasses (1/4 receive a $40 pair, don't need glasses). 900000 oox What is the revenue per case? What are the ANNUAL fixed and variable costs? R(x) 2400x 1. 2. How many operations does the facility need to break even? 3. How much profit can the facility expect in one year? 18000O ADVERTISING CAMPAIGN An advertising campaign is being proposed that would cost $20,000 a month. The ad executives think business would increase by an additional 40 operations a month. The facility believes the facility can handle the extra operations without impacting facilities, equipment, and salary costs. 4. How many more operations per month would be required to offset the extra expense? (fractions okay) Remember, each operation brings in more 5. How much would the expected profit be impacted if the ad executives are correct? EQUIPMENT INVESTMENT A machine is available that costs $100,000 annually to rent, but reduces costs per patient by $100/patient. 6. How much would the expected profit be impacted if there is no advertising campaign? 7. How much would the expected profit be impacted if there is an advertising campaign? Be specific in which profits you're comparing.Explanation / Answer
Advertising campaign:
As a result of the advertising campaign, the annual variable expenses would increase by 12*20000 i.e. $ 240000 so that the total annual expenses would become $ 1548000+$ 240000 = $ 1788000.
The number of operations per month will increase to (60+40)*12 = 1200.
Equipment Investment:
The annual rental for a machine is $ 100000. The machine reduces cost per patient by $ 100.
Case 1. If there is no advertisising campaign then the expected annual revenue remains same at $ 1728000 , but the annual fixed costs increase by $ 100000, and the annual variable costs decrease by 720*$100 = $ 72000. Thus, the annual profit will decrease by $ 100000-$ 72000 = $ 28000. The expected profit is $ 180000-$ 28000 = $ 152000.
Case 2. If there is an advertisising campaign at an annual cost of $ 240000, then the expected annual revenue is 1200*$2400 = $2880000. The annual fixed costs will be $ 900000+$100000 = $ 1000000. The variable costs will be (a) 1200 *$ 760 = $ 912000 towards medical supplies and drugs, (b)1200*$30 = $36000 towards bouquets of flowers post-surgery and (c) 1200*$10 = $ 12000 towards pairs of glasses. Thus, the total annual variable expenses will be $ (912000+36000+12000) = $960000. Thus, the total annual fixed plus variable cost will be $ 1000000+$960000 = $ 1960000. Therefore, the expected annual profit is total annual revenue-(total fixed+variable expenses) = $ 2880000- $ 1960000 = $ 920000.
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