Question

Tranquility Care provides home healthcare services at an average price of $70 per hour and incurs variable costs of $45 per hour. Assume average fixed costs are $3,600 a month. (Round your answer to the nearest whole unit.) 1. What is the number of hours that must be billed to reach the breakeven point? 2. If the company desires to make a profit of $2,000, how many hours must be completed? 3. The company thinks it can reduce fixed costs to $3,400, but variable cost will increase to $48 per hour. The price per unit will not change. What is the new breakeven point in hours?

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Selling price= $70 per hour

Unitary variable cost= $45 per hour.

The average fixed costs= $3,600 a month.

First, we need to calculate the break-even point in hours:

Break-even point= fixed costs/ contribution margin

Break-even point= 3,600 / (70 - 45)= 144 hours

Now, we must include the desired profit to the break-even formula:

Break-even point= (fixed costs + desired profit)/ contribution margin

Break-even point= (3,600 + 2,000) / 25= 224 hours

Finally, we recalculate the break-even point with the new changes:

Break-even point= 3,400/ (70 - 48)= 175 hours