Allied laboratories is combining some of its most common tests into one price pa

Question

Allied laboratories is combining some of its most common tests into one price packages. One such package will contain three tests that have the following variable costs:

When the tests are combined, only one syringe, form, and sterile bandage will be used. Futhermore, only one charge for breakage/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required). a. As a starting point, what is the price of the combined test assuming marginal cost pricing? b.Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal? c. Allied estimates that 2,000 of the combined tests will be conducted during the first year. The annual allocation of direct fixed and overhead costs total $40,000. What price must be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test?

Test A Test B Test C Disposable Syringe $3.00 $3.00 $3.00 Blood Vial .50 .50 .50 Forms .15 .15 .15 Reagents .80 .60 1.20 Sterile Bandage .10 .10 .10 Breakage/losses .05 .05 .05

Explanation / Answer

Allied Laboratories a Variable cost per Combined Test Cost Details Amt $ Disposable Syringe                    3.00 Blood Vial                    1.00 Form                    0.15 Reagents                    2.60 Sterile Bandage                    0.10 Breakage loss                    0.50 Total Marginal Cost per combined test                    7.35 b Required Contribution Margin per test                    10.00 Add: Unit Variable cost per test                    7.35 Required Price ( Marginal costing ) =10+7.35=                  17.35 c Annual Fixed costs            40,000.00 Add : Variable cost of 2000 tests @$7.35 per test=          14,700.00 Total cost for 2000 tests          54,700.00 Price per test to cover full costs=54700/2000= $              27.35 Required Profit            20,000.00 Add:Annual Fixed costs            40,000.00 Add : Variable cost of 2000 tests @$7.35 per test=          14,700.00 Total Revenued required =          74,700.00 Required Price per test =74700/2000= $              37.35

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