This year, Yang County made a $400,000 lump-sum Donation to a not-for- profit ag

Question

This year, Yang County made a $400,000 lump-sum Donation to a not-for- profit agency that counsels substance abusers. The county requires the entire amount to be spent by the end of the fiscal year. The variable costs for pharmaceuticals and supplies used by clients average $400 per patient per year. Fixed costs are $150,000. The accountant at the agency is developing a CVP analysis for the agency director. She has asked you to do the following: Required a. Compute the number of clients that could be served per year. b. Suppose the total budget for the following year is reduced by 10%. Fixed costs will remain the same. The same quality of client service will be maintained. Compute the number of clients that could be served in a vear. C. Continue to assume a budget reduction of 10%. Fixed costs are to remain the same. The drug counsellors determine the amount of pharmaceuticals and supplies that each client needs. The agency director does not want to reduce the number of clients served from the original amount in part (a) Compute the amount by which pharmaceuticals and supplies need to be reduced to maintain current volumes of services. d. List reasons why the actual cost of pharmaceuticals and supplies cannot be estimated with complete accuracy.*

Explanation / Answer

a)400000- fixed cost = 400000-150000 = 250000 no of clients = 250000/400 = 625 b)total budget = 400000- 10%*400000 = 400000-40000 = 360000 = 360000 - 150000 210000 no of clients = 210000/400 = 525 c) to serve 625 patients , pharmaceuticals per patient = 210000/625= 336 pharmaceuticals and supplies need to be reduced by 400-336 = 65 d) The actual cost of pharmaceuticals and supplies cannot be estimated with complete accuracy , because each client requires different types or quantities of medicine for treatement The amount of supplies needed also differs from client to client

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