Break-Even Sales: Sales for Target Profit
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 24,500 hours next year. Health-Temp charges the hospitals and clinics $110 per hour and has variable costs of $86.90 per hour (this includes the payment to the nurse). Total fixed costs equal $545,391.
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.
Contribution margin per unit | $ |
Contribution margin ratio |
2. Calculate the sales revenue needed to break
even.
$
3. Calculate the sales revenue needed to
achieve a target profit of $143,220.
$
4. What if
Health-Temp had target operating income (profit) of $175,560? Would
sales revenue be larger or smaller than the one calculated in
Requirement 3?
Answer:-1)- Contribution margin per unit/hour=Revenue per hour-Variable cost per hour
=$110 per hour - $86.90 per hour =$23.10 per hour
Contribution margin ratio =( Contribution margin per hour/ Revenue per hour)*100
=($23.10 per hour/$110 per hour)*100 =21%
2)-Sales revenue needed to break even =Fixed cost/ Contribution margin ratio
=$545391/21% =$2726955
3)- Sales revenue to achieve target profit= Fixed cost+ Target profit/ Contribution margin ratio
=$545391+$143220/21%
=$688611/21%
=$3279100
4) If Health-Temp had target operating income (profit)
of $175,560, the sales revenue would be larger than the one
calculated in Requirement 3 (ie-$3433100-$3279100=$154100
Explanation:-
$545391+$175560/21%
=$720951/21%
=$3433100
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