Question

1. Pet Energy Therapy Association (PETA) treats peoples’ pets, and has the following cost structure:

Charge per therapy session $ 95

Variable cost per therapy session $ 45

Fixed costs $75,000

They expect to perform 2,000 two-hour session each year (Two people, 8hrs/day, 5 days/week, 50 weeks/year).

C. To earn double the profit in Part A, how many sessions must they provide this year? __________Sessions?

Answer 1

Contribution Margin per therapy session = Charge per therapy session - Variable Cost per therapy session
Contribution Margin per therapy session = $95 - $45
Contribution Margin per therapy session = $50

Desired Profit = 2 * Profit in Part (A)
Desired Profit = 2 * $25,000
Desired Profit = $50,000

Required Number of Sessions = (Fixed Costs + Desired Profit) / Contribution Margin per therapy session
Required Number of Sessions = ($75,000 + $50,000) / $50
Required Number of Sessions = $125,000 / $50
Required Number of Sessions = 2,500