Problem:
Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data estimates:
Variable cost per visit: $5
Annual direct fixed costs: $500,000
Annual overhead allocation: $50,000
Expected annual utilization: 10,000 visits
Required:
Question 1: What per visit price must be set for the service to break even? To earn an annual profit of $100,000?
b.) Repeat Part a, but assume that the variable cost per visit is $10.
c.) Return to the data given in the problem. Again repeat Part a, but assume that the direct fixed costs are $1,000,000.
d.) Repeat Part a assuming both a $10 variable cost and $1,000,000 in direct fixed costs.
Explain in detail.