Health-Temp Company is a placement agency for temporary nurses. It serves hospit

Question

Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinics throughout the metropolitan area. Health-Temp Company believes it will place temporary nurses for a total of 27,000 hours next year. Health-Temp charges the hospitals and clinics $130 per hour and has variable costs of $109.20 per hour (this includes the payment to the nurse). Total fixed costs equal $547,040.

Required:

1. Calculate the contribution margin per unit and the contribution margin ratio (express the ratio as a decimal rather than a percentage). If required, round your answers to two decimal places.

2. Calculate the sales revenue needed to break even.
$

3. Calculate the sales revenue needed to achieve a target profit of $128,960.
$

4. What if Health-Temp had target operating income (profit) of $158,080? Would sales revenue be larger or smaller than the one calculated in Requirement 3?
- Larger OR Smaller?

By how much?
$

Explanation / Answer

1 Contribution margin per unit = 130-109.2= 20.8 Contribution margin ratio = 20.8/130= 16% 2 Sales revenue to break even = Fixed costs/Contribution margin ratio = 547040/16%= 3419000 3 Sales revenue needed = (547040+128960)/16%= 4225000 4 Sales revenue would be larger Sales revenue needed = (547040+158080)/16%= 4407000 Difference = 4407000-4225000= 182000

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