Hospital Supply

Hospital Supply Inc.

Question 1

Total fixed cost for 3,000 units = $4,290.000

Total variable cost per unit = $2,070

Selling price = $4,350

Unit contribution = $2,280

Break-even volume = 4,290,000 / (4,350 - 2,070) = 1,882 units

Break-even in sales = 1,882 x 4,350 = 8,186,700 dollars

Question 2

The statement reveals that regardless of how attractive an increase in units sold sounds, cutting the prices to $3,850 will not improve the bottom line of the company; on the contrary, it will actually reduce this amount by 23.92%

Question 3

If the company accepts the government contract it will report a loss of $328,750 on net income; moreover, it will lose potential profitable customers who will opt to obtain the item from competitors. The company should reject the contract or negotiate a fixed fee of at least $617,500 only at this value the company will report the same level of income (this value ignores the opportunity cost of losing future customers).

Question 4

The minimum unit price the company should consider for this order is $2,227 per unit

Question 5

The minimum price the company should sell the obsolete models for, is the price that covers the variable cost related to the actual sale transaction of the model, this is the marketing cost of $275.

Question 6

We compared the unit cost to the normal volume values of the company, by doing so, we found that the maximum amount that Hospital Supply should pay for outsourced inventory should be $2,444. Therefore, they should reject the proposal of $2,475 from the contractor.

Question 7

In this scenario the maximum amount that Hospital Supply should pay to the outsourced contractor is $2,950. The company should accept the current offer of $2,475 per unit.