Question

#9. Allied Laboratories is combing 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. Furthermore, 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). 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 totals $40,000. What price must be set to cover the total overhead costs at the projected volume.

What price must be charged to cover full costs?

Choice: $26.90

Choice: $31.50

Choice: $39.40

Choice: $43.75

	Test A	Test B	Test C
Disposable Syringe	$3.00	$3.00	$3.00
Blood Vial	$0.50	$0.50	$0.50
Forms	$0.15	$0.15	$0.15
Reagents	$0.80	$0.60	$1.20
Sterile Bandages	$0.10	$0.10	$0.10
Breakage/losses	$0.05	$0.05	$0.05

Answer 1

Total cost per combined Test is $ 26 as solved in the image.

Therefore Allied Laboratories can decide as per customer's capacity to pay and willingness to pay for test. They can choose either $26.90 with minimal profit and 43.75 with maximum profit. As price $26.90 is able to cover all the cost of test package i.e, $26 per package of test.