Question

A. The expected annual utilization is 10,000 visits. The variable cost is $5 per visit, fixed cost is $500,000 per annum and overhead allocation is $50,000 per annum. Breakeven price can be calculated with the help of this formula:

Breakeven per visit price = total cost incurred on service / total number of visits

A. What is the breakeven cost for the company? Show your work please.

B. Desired profit is that amount which the company wants to earn from sales of its products or services. The formula for the calculation of price, when desired profit is given, is as follows:

Price per visit = (total cost incurred on service + desired profit) / total number of visits

The desired profit is $100,000. What price should you charge per visit to produce that amount of profit? Show your work please.

C. If the fixed costs are changed to $1,000,000 and the other costs are the same as in part A, what is the breakeven price per visit? Show your work please.

D. The desired profit is still $100,000, how much should you charge per visit to make that profit? Show your work please.

E. The variable cost changes to $10 per visit and the fixed cost is $1,000,000 and overhead allocation is $50,000 per annum. What is the breakeven cost now? Show your work please.

F. The desired profit is $100,000. How much should you charge per visit now? Show your work please.

Answer 1

Annual Visits = 20000, Variable cost = 5 per visit, Fixed cost 500000 , Overhead allocation = 50000

A) Calculation of Break Even price per visit

=

=

=

= 32.5

B) Price per visit for desired profit

=

=

= 37.5

C) Change in fixed cost. break even

= 57.5

D) Change in Fixed cost with desired 100000 profit.

=

= 62.5

E) Variable cost change to 10, FC 100000 and overhead 50000

= 62.

F) Variable cost 10, FC 1000000, overhead 50000 and profit 100000

= 67.5