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

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Finance

Assume the managers of the Fort Winton Hospital are setting theprice on a new outpatient service. Here are the relevant dataestimates:

Variable cost per visit $5.000

Annual direct fixed costs $500,000

Annual overhead allocation $50,000

Expected Annual utilization 10,000visits           

1.What per-visit price must be set for the service tobreak-even? To earn an annual profit of $100,000?

2.Repeat part a, but assume that the variable cost per visit is$10.

3.Return to the data given in the problem. Again, repeat part a,but assume that direct fixed costs are $1,000,000.

4. Repeat part a assuming both a $10 variable cost and$2,000,000 in direct fixed costs

Answer & Explanation Solved by verified expert
4.2 Ratings (638 Votes)

a. Let per visit price for the service to break even be x

At break even point ,

Total contribution=Total fixed cost

10,000(x-5) =500,000+50,000

10,000x-50,000=550,000

x=$60

To earn desired profit of $100,000

Total contribution=Total fixed cost + desired profit

10,000(x-5) =500,000+50,000+100,000

x=$70

b)

At break even point ,

Total contribution=Total fixed cost

10,000(x-10) =500,000+50,000

10,000x-100,000=550,000

x=$65

To earn desired profit of $100,000

Total contribution=Total fixed cost + desired profit

10,000(x-10) =500,000+50,000+100,000

x=$75

c)

At break even point ,

Total contribution=Total fixed cost

10,000(x-5) =1,000,000+50,000

10,000x-50,000=1,050,000

x=$110

To earn desired profit of $100,000

Total contribution=Total fixed cost + desired profit

10,000(x-5) =1,000,000+50,000+100,000

x=$120

d)

Total contribution=Total fixed cost

10,000(x-10) =2,000,000+50,000

10,000x-100,000=2,050,000

x=$215

To earn desired profit of $100,000

Total contribution=Total fixed cost + desired profit

10,000(x-10) =2,000,000+50,000+100,000

x=$225
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Transcribed Image Text

Assume the managers of the Fort Winton Hospital are setting theprice on a new outpatient service. Here are the relevant dataestimates:Variable cost per visit $5.000Annual direct fixed costs $500,000Annual overhead allocation $50,000Expected Annual utilization 10,000visits           1.What per-visit price must be set for the service tobreak-even? To earn an annual profit of $100,000?2.Repeat part a, but assume that the variable cost per visit is$10.3.Return to the data given in the problem. Again, repeat part a,but assume that direct fixed costs are $1,000,000.4. Repeat part a assuming both a $10 variable cost and$2,000,000 in direct fixed costs

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