Dr Jones is a radiologist at Olympic Hospital, and he has estimated the following costs for his Radiology Department for next year:
- Materials $10 per film
- Radiologists' salaries $380,000
- Technicians' salaries 180,000
- Office staff salaries 20,000
- Supplies 80,000
- Depreciation on equipment 60,000
- Rental 30,000
This budget is based on an estimate of 25,000 films being processed next year using the current X-ray machines, which will be operating at their maximum capacity. These machines originally cost $200,000 each when they were purchased 10 years ago. The average fee charged to clients for processing a film is $50.
Dr Jones is considering the purchase of an additional X-ray machine, which will cost $750,000 and is expected to last for 3 years. This purchase would increase the capacity of the department by 50,000 films per year. As this machine can process more intricate films, the average fee for each film is expected to be $60. An additional technician would need to be hired to operate the machine at a cost of $80,000 and the cost of supplies would increase by $90,000 per year. Materials for this machine will be $16 per film.
Required (show all workings):
1. Use the budgeted data to calculate the break-even point in number of films, and the budgeted profit of the department, assuming the new machine is NOT purchased.
2. What is the break-even point if the new machine IS purchased? (Assume a sales mix based on the maximum capacity).
3. What will be the new budgeted profit, assuming the department operates at full capacity?