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.