16-1 Hospital Supply

HOMEWORK – CASE #16-1

HOSPITAL SUPPLY, INC.

ACG6425

1. The break-even volume in units is 1882. The sales dollars is $8,186,700.

x = TFC / (UP-UVC)

x = 4,290,000 / (4350-2070) = 1882

TR = UP * x >> TR = 4350 (1882) = $8,186,700

2. I would not recommend the reduction of the selling price per unit from $4350 to $3850. Though sales would increase by $425,000, the variable costs would increase by $1,035,000 and the net income would decrease by $610,000.

| |Normal Volume |Increased Volume |

|Units |3000 |3500 |

|Selling Price |4350 |3850 |

| | | |

|Total Sales | $13,050,000 | $13,475,000 |

|Variable Costs | $6,210,000 | $7,245,000 |

|Contribution Margin | $6,840,000 | $6,230,000 |

|Fixed Cost | $4,290,000 | $4,290,000 |

|Net Income | $2,550,000 | $1,940,000 |

3. The impact on March’s income if accepting the government contract would result in a net income decrease by $535,000.

|Lost March Volume | |

|500 | |

| | |

|Selling Price | |

|4350 | |

|...