Hospital Supply, Inc.
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G R O U P C A S E 3: H O S P I T A L S U P P L Y, I N C Given Information: Hospital Supply, Inc.’s Normal Volume (in units per month) | 3,000 | Regular Selling Price (per unit) | 4,350 | Costs per Unit for Hydraulic Hoists | | | Unit Manufacturing Costs: | | | Variable Materials | 550 | | Variable Labor | 825 | | Variable Overhead | 420 | | Fixed Overhead | 660 | | Total Unit Manufacturing Costs | | $2,455 | | | | Unit Marketing Costs: | | | Variable | 275 | | Fixed | 770 | | Total Unit Marketing Costs | | 1,045 | | | | Total Unit Costs | | $3,500 |
1) What is the break-even volume in units, and in sales dollars? Total Fixed Costs | 4,290,000.00 | Total Variable Costs per unit | 2,070.00 | Contribution Margin per unit | 2,280.00 | Contribution Margin Ratio | 0.52 | Break-even Point in Units | 1,882 | Break-even Point in Sales Dollars | $8,184,868.42 |
2) Market research estimates that monthly volume could increase to 3,500 units, which is well within hoist production capacity limitations, if the price were cut from $4,350 to $3,850 per unit. Assuming the cost behavior patterns implied by the given data are correct, would you recommend that this action be taken? Explain and show the basis of your answer. Increase in Volume | 3,500.00 | New Price per Unit | 3,850.00 |
| Before PriceReduction | After PriceReduction | Difference | Revenue | 13,050,000 | 13,475,000 | -425,000 | Variable Marketing Costs | 825,000 | 962,500 | -137,500 | Variable Manufacturing Costs | 5,385,000 | 6,282,500 | -897,500 | Contribution Margin | 6,840,000 | 6,230,000 | 610,000 |
G R O U P C A S E 3: H O S P I T A L S U P P L Y, I N C Given Information: Hospital Supply, Inc.’s Normal Volume (in units per month) | 3,000 | Regular Selling Price (per unit) | 4,350 | Costs per Unit for Hydraulic Hoists | | | Unit Manufacturing Costs: | | | Variable Materials | 550 | | Variable Labor | 825 | | Variable Overhead | 420 | | Fixed Overhead | 660 | | Total Unit Manufacturing Costs | | $2,455 | | | | Unit Marketing Costs: | | | Variable | 275 | | Fixed | 770 | | Total Unit Marketing Costs | | 1,045 | | | | Total Unit Costs | | $3,500 |
1) What is the break-even volume in units, and in sales dollars? Total Fixed Costs | 4,290,000.00 | Total Variable Costs per unit | 2,070.00 | Contribution Margin per unit | 2,280.00 | Contribution Margin Ratio | 0.52 | Break-even Point in Units | 1,882 | Break-even Point in Sales Dollars | $8,184,868.42 |
2) Market research estimates that monthly volume could increase to 3,500 units, which is well within hoist production capacity limitations, if the price were cut from $4,350 to $3,850 per unit. Assuming the cost behavior patterns implied by the given data are correct, would you recommend that this action be taken? Explain and show the basis of your answer. Increase in Volume | 3,500.00 | New Price per Unit | 3,850.00 |
| Before PriceReduction | After PriceReduction | Difference | Revenue | 13,050,000 | 13,475,000 | -425,000 | Variable Marketing Costs | 825,000 | 962,500 | -137,500 | Variable Manufacturing Costs | 5,385,000 | 6,282,500 | -897,500 | Contribution Margin | 6,840,000 | 6,230,000 | 610,000 |