# Hospital Supply Inc

375 Words2 Pages
Question 1 : What is the break-even volume in units? In sales dollars? 1) Normal Volume 3,000 units 2) Selling Price @ Unit Price \$4,350 3) Contribution Margin per unit = Unit Price - Unit Variable Costs \$4,350 - \$2,070 \$2,280 4) Contribution Percent \$2,280 / \$4,350 0.524138 5) Unit Variable Cost \$550 + \$825 + \$420 + \$275 \$2,070 6) Unit Fixed Cost \$660 + \$770 \$1,430 7) Total Fixed Cost (TFC) = Unit Fixed Cost * Normal Volume \$1,430 * 3,000 \$4,290,000 8) Break-even Volume (in units) = Fixed Cost / Unit Contribution \$4,290,000 / \$2,280 1,882 unit 9) Break-even Volume (in sales) = Fixed Cost / Contribution Percent \$4,290,000 / 0.524138 \$8,184,867 Question 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 he data in Exhibit 1 are correct would you recommend that this action be taken? What would be the impact on monthly sales cost, and income? Regular Selling Price Impact: Price \$4,350 Quantity \$3,000 Revenue \$13,050,000 Variable Manufacturing Costs (\$5,385,000) Variable Marketing Costs (\$825,000) Contribution Margin \$6,840,000 *Fixed Manufacturing Costs (\$1,980,000) *Fixed Marketing Costs (\$2,310,000) Income \$2,550,000 Using the regular selling price Income = Revenues – Total costs = \$13,050,000 - \$10,500,000 = \$2,550,000 * Continue to the next page New Selling Price Impact: Price \$3,850 Quantity \$3,500 Revenue \$13,475,000 Variable Manufacturing Costs (\$6,282,500) Variable Marketing Costs (\$962,500) Contribution Margin \$6,230,000 Fixed Manufacturing Costs (\$1,980,000) Fixed Marketing Costs (\$2,310,000) Income \$1,940,000 2) After price reduction, income = \$13,475,000 - \$11,535,000 =