Hospital Supply, Inc. Essay

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------------------------------------------------- Hospital Supply, Inc. ------------------------------------------------- Case 16-1 1) What is the break-even volume in units? In sales dollars? The break-even volume in units is 1,882 units and in sales dollars is $8,184,868. I used a break-even formula (Total Fixed Costs divided by the Contribution %) to calculate sales dollars. However, I could have also calculated the sales dollars by taking the 1,882 units and multiplying it by the sales price of $4,350. Calculating sales dollars in that manner would have given me a slightly different calculation of $8,186,700 in sales dollars based on the rounding involved in both calculations. Units = | TFC | | UP – UVC | Sales = | TFC | | Contribution % | Break-even volume: Break-even units = | ($1,430 * 3,000) | = | $4,290,000 | = | 1,882 units | | ($4,350 - $2,070) | | $2,280 | | | Break-even sales = | ($1,430 * 3,000) | = | $4,290,000 | = | $8,184,868 | | ($4,350 - $2,070) / $4,350 | | 52.41% | | | 2) Market research estimates that monthly volume could increase to 3,500 units, which is well within hoist production capacity limitations, if the price were cut from $4,350 to $3,850 per unit. Assuming the cost behavior patterns implied by the data in Exhibit 1 are correct, would you recommend that this action be taken? What would be the impact on monthly sales, costs, and income? No, I would not recommend increasing production to 3,500 units and selling the hydraulic hoists at a reduced price of $3,850/unit. If this is done, Hospital Supply, Inc. will have $610,000 less income than when 3,000 hydraulic hoists were produced and sold at $4,350/unit. Total Income (I) = | (UP - UVC)X - TFC | | | 3,000 units at $4,350/unit = | ($4,350 - $2,070)*(3,000) - ($1,430*3,000) | = | $ 2,550,000 |

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