Problem:
Assume that the managers at Fort Winston Hospital are setting the price on a new outpatient service. The relevant data estimates:
- Variable cost per visit $ 5.00
- Annual direct fixed costs $ 500,000
- Annual overhead allocation $ 50,000
- Expected annual utilization 10,000 visits
Requirement:
Question 1: What per visit price must be set for the service to breakeven? Then to earn an annual profit of $100,000?
Question 2: Repeat part a, but assume that the variable cost is $10.
Question 3: Repeat part a assuming both a $10 variable cost and $1,000,000 in direct fixed costs.
Note: Explain all calculation and formulas.