In: Finance
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 |
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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