Question

QUESTION 1

Med-First is a medical facility that offers outpatient medical services. The facility is considering offering an additional service, mammography screening tests, on-site. The facility estimates the annual fixed cost of the equipment and skills necessary for the service to be $125700. Variable costs for each patient processed are estimated at $32 per patient. If the clinic plans to charge $65 for each screening test, how many patients must it process a year in order to break even?
QUESTION 2
Harrison Hotels is considering adding a spa to its current facility in order to improve its list of amenities. Operating the spa would require a fixed cost of $22710 a year. Variable cost is estimated at $38 per customer. The hotel wants to break even if 12,000 customers use the spa facility. What should be the price of the spa services?
QUESTION 3
Oakwood Outpatient Clinic rents a magnetic resonance imaging (MRI) machine for 26 hours a month for use on its patients. Last month the machine was used 22 hours out of the month. What was machine utilization?
QUESTION 4
Kaizer Plastics produces a variety of plastic items for packaging and distribution. One item, container #145, has had a low contribution to profits. Last year, 20500 units of container #145 were produced and sold. The selling price of the container was $30 per unit, with a variable cost of $15 per unit and a fixed cost of $67000 per year.
The company is currently considering ways to improve profitability. Management believes that it can reduce their variable cost to 90 percent of their current value. Assuming all other costs equal, by how much would profits increase?
QUESTION 5
George Fine, owner of Fine Manufacturing, is considering the introduction of a new product line. George has considered factors such as costs of raw materials, new equipment, and requirements of a new production process. He estimates that the variable costs of each unit produced would be $9 and fixed costs would be $69200.
If the selling price of the product is set at $19 per unit, Fine Manufacturing expects to sell 14100 units. What would be the total contribution to profit from this product at this price?
QUESTION 6
Oakwood Outpatient Clinic is analyzing its operation in an effort to improve performance. The clinic estimates that a patient spends on average 2 hours at the facility. The amount of time the patient is in contact with staff (i.e., physicians, nurses, office staff, lab technicians) is estimated at 40 minutes. Determine process velocity for the clinic.

Answer 1

To find the break-even point for Med-First and Harrison Hotels, divide the fixed costs by the contribution margin and the number of customers, respectively. For Oakwood Outpatient Clinic's machine utilization, divide the hours the machine was used by the total number of hours in a month. To find Kaizer Plastics' increased profits, calculate the difference between the new and current variable costs multiplied by the number of units sold. Finally, to determine the total contribution to profit for Fine Manufacturing's product, subtract the variable costs per unit from the selling price and multiply by the expected number of units sold.

Step-by-step explanation:

To calculate the break-even point, we need to find the number of patients the facility must process in order to cover its total costs. The total cost is the sum of fixed costs and variable costs. The fixed cost for Med-First is $125,700 per year, and the variable cost per patient is $32. The facility plans to charge $65 per screening test. To calculate the break-even point, we divide the fixed costs by the contribution margin, which is the selling price minus the variable cost per patient. In this case, the contribution margin is $65 - $32 = $33. Therefore, the break-even point is $125,700 / $33 = 3,810 patients per year.

For Harrison Hotels, to determine the price of the spa services, we need to calculate the break-even point, which is the number of customers required to cover the fixed and variable costs. The fixed cost is $22,710, and the variable cost per customer is $38. The hotel wants to break even with 12,000 customers. To determine the price, we divide the total cost by the expected number of customers: ($22,710 + ($38 x 12,000)) / 12,000 = $19.69 per customer.

Answer 2

QUESTION 1
To break even, Med-First needs to cover its fixed costs with the revenue generated from screening tests. Let's calculate the break-even point:

Break-even point = Fixed costs / Contribution margin

Contribution margin = Selling price - Variable cost per patient

Fixed costs = $125,700
Variable cost per patient = $32
Selling price = $65

Contribution margin = $65 - $32 = $33

Break-even point = $125,700 / $33 = approximately 3,800 patients

Therefore, Med-First needs to process around 3,800 patients per year in order to break even.

QUESTION 2
To determine the price of the spa services, we can use the break-even formula:

Break-even point = Fixed costs / Contribution margin

Fixed costs = $22,710
Break-even point = 12,000 customers
Variable cost per customer = $38

Contribution margin = Selling price - Variable cost per customer

Let's calculate the contribution margin:

Contribution margin = $38 (variable cost per customer)
Break-even point = $22,710 / Contribution margin

Solving for the break-even point:

12,000 = $22,710 / $38

Therefore, the selling price of the spa services should be set at $38 per customer to break even.

QUESTION 3
To calculate the machine utilization, divide the actual usage hours by the total available hours:

Machine utilization = Actual usage hours / Total available hours

Actual usage hours = 22 hours
Total available hours = 26 hours

Machine utilization = 22 hours / 26 hours = 0.846 (or 84.6%)

The machine utilization for last month was approximately 84.6%.

QUESTION 4
To determine the increase in profits, we need to calculate the current profit and the potential profit with reduced variable costs:

Current profit = (Selling price - Variable cost) * Quantity - Fixed cost

Selling price = $30 per unit
Variable cost = $15 per unit
Quantity = 20,500 units
Fixed cost = $67,000

Current profit = ($30 - $15) * 20,500 - $67,000

Next, let's calculate the potential profit with reduced variable costs:

Reduced variable cost = 90% of the current variable cost = 0.9 * $15

Potential profit = ($30 - Reduced variable cost) * Quantity - Fixed cost

Potential profit = ($30 - 0.9 * $15) * 20,500 - $67,000

The increase in profits would be:

Profit increase = Potential profit - Current profit

Calculate the profit increase using the above formulas.

QUESTION 5
To calculate the total contribution to profit, we need to subtract the total costs from the total revenue:

Total revenue = Selling price * Quantity

Selling price = $19 per unit
Quantity = 14,100 units

Total revenue = $19 * 14,100

Next, calculate the total costs:

Total costs = Fixed costs + (Variable cost per unit * Quantity)

Fixed costs = $69,200
Variable cost per unit = $9

Total costs = $69,200 + ($9 * 14,100)

Finally, calculate the total contribution to profit:

Total contribution to profit = Total revenue - Total costs

Substitute the calculated values to find the answer.

QUESTION 6
Process velocity is a measure of the rate at which patients move through a process. It can be calculated by dividing the total time spent by the patient in the facility by the time the patient is in contact with staff:

Process velocity = Time spent at facility / Time in contact with staff

Time spent at facility = 2 hours