Hospital Supply

Case 3: Hospital Supply

1. The break-even volume in units is 1,882. This is the result from dividing total fixed costs by price-variable costs. Total fixed costs are $4,290,000 and selling price is $4,350 and variable cost per unit is $2,070. In sales dollars it is $8,186,700, which is calculated from the selling price x break even volume in units.

2. If volume increases to 3,500 units and price decreases to $3,850 then monthly sales would go up. Total costs would be higher for the 3,500 units than the 3,000. Income would be higher for the 3,000 units than the 3,500 units. This is why I would recommend that this action not be taken. It is better to leave the same price for 3,000 units.

Units=3,000

Sales price=4,350

Monthly Sales=13,050,000

Total Costs=10,500,000

Income=2,550,000

Units= 3,500

Sales price=3,850

Monthly Sales= 13,475,000

Total Costs=12,250,000

Income=1,225,000

3. Accepting the government contract would have a negative impact on March income. Hospital Supply would lose $150,000 on March income. They would also be losing customers, as the customers where the 500 units would normally go are going to competitors.

Units=4000

Sales price=4,350

Monthly Sales=17,400,000

Total Costs=14,000,000

Income=3,400,000

Units=3500 Government Units=500

Sales Price=4,350 Fixed Price=275,000

Monthly Sales=15,225,000

Total Costs=12,250,000

Income=2,975,000

Total Income=3,250,000

4. The break even price for selling 1,000 units in the foreign market is $2,887. Therefore that is the minimum unit price Hospital Supply should consider for these 1,000 units.

Units=1,000

Total marketing costs=22,000

Total Manufacturing costs+shipping costs=2,865,000

Total costs=2,887,000

Break even price=2,887

5. The minimum price that would be acceptable to sell is $3,500. Selling it at this price means that it is equal to the total unit costs. It cost $3,500 per unit for these 200 units. Therefore selling at minimum at this price means...