(Use whole dollars and cents!) Assume that managers of IDC Hospital are setting

ID: 2783139 • Letter: #

Question

(Use whole dollars and cents!)

Assume that managers of IDC Hospital are setting the price on a new outpatient service.

Here are relevant data estimates:

Variable cost per visit $28.50

Annual Direct Fixed Costs $850,000

Annual Overhead Allocation $225,000

Expected Annual Utilization 76,000 visits

A. 1. What per visit price must be set for the service to breakeven? 2.To earn an annual profit of $75,000?

B. Repeat Part a, but assume that the variable cost per visit is $30.

C. Return to the original data given in the problem. Again repeat Part a, but assume that direct fixed costs are $750,000.

D. Repeat Part a assuming both a $30 variable cost and $750,000 in direct fixed costs.

A1) Price to breakeven:

No. of visits*(Selling price – Variable cost) = (Fixed costs + Overhead)

Selling price = ((850000+225000)/76000) + 28.5

= 42.64

A2) Selling price = ((850000+225000+75000)/76000) + 28.5

= 43.63

B1) Selling price = ((850000+225000)/76000) + 30

= 44.14

B2) Selling price = ((850000+225000+75000)/76000) + 30

= 45.13

C1) Selling price = ((750000+225000)/76000) + 28.5

= 41.32

C2) Selling price = ((750000+225000+75000)/76000) + 28.5

= 42.31

D1) Selling price = ((750000+225000)/76000) + 30

= 42.82

D2) Selling price = ((750000+225000+75000)/76000) + 30

= 43.81

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