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5.1 Assume the managers of the Fort Winton Hospital are setting the price on a new...

5.1 Assume the managers of the Fort Winton Hospital are setting the price on a new outpatient service. Here are the relevant data estimates:

Variable cost per visit $5.000

Annual direct fixed costs $500,000

Annual overhead allocation of $50,000

Expected Annual utilization 10,000 visits
  1. What per-visit price must be set for the service to break-even? To earn an annual profit of $100,000?
  1. Repeat part a, but assume that the variable cost per visit is $10.
  1. Return to the data given in the problem. Again, repeat part a, but assume that direct fixed costs are $1,000,000.
  1. Repeat part a assuming both a $10 variable cost and $2,000,000 in direct fixed costs

Solutions

Expert Solution

Let Price per visit = $S

Variable Cost( V )= $5

Contribution = Price - Variable =$ (S-5)

Annual Fixed Cost(F) = Annual Direct Fixed Cost + Annual Overhead Allocation

F= 500000 + 50000 = $550000

Number of visits = 10000

Breakeven point = Fixed Cost / Contribution

10000 = 550000/(S-5)

a. S = $600000/10000 = $60

Annual Profit of 1 lac

So, 100000 = 10000*S-550000 - 5*10000

S = 700000/10000= $70

b.

Let Price per visit = $S

Variable Cost( V )= $10

Contribution = Price - Variable =$ (S-10)

Annual Fixed Cost(F) = Annual Direct Fixed Cost + Annual Overhead Allocation

F= 500000 + 50000 = $550000

Number of visits = 10000

Breakeven point = Fixed Cost / Contribution

10000 = 550000/(S-10)

S = $650000/10000 = $65

c.

Let Price per visit = $S

Variable Cost( V )= $5

Contribution = Price - Variable =$ (S-5)

Annual Fixed Cost(F) = Annual Direct Fixed Cost + Annual Overhead Allocation

F= 1000000 + 50000 = $1050000

Number of visits = 10000

Breakeven point = Fixed Cost / Contribution

10000 = 1050000/(S-5)

S = $1100000/10000 = $110

d.

Let Price per visit = $S

Variable Cost( V )= $10

Contribution = Price - Variable =$ (S-10)

Annual Fixed Cost(F) = Annual Direct Fixed Cost + Annual Overhead Allocation

F= 2000000 + 50000 = $2050000

Number of visits = 10000

Breakeven point = Fixed Cost / Contribution

10000 = 2050000/(S-10)

S = $2150000/10000 = $215

jeff jeffy answered 1 year ago
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