Hospital Supply,Inc.,produced hydraulic hoists that were used by hospitals to move bedridden patients. The costs of manufacturing and marketing hydraulic hoists at the company’s normal volume of 3,000 units per month are shown in Exhibit 1.
EXHIBIT 1: Cost per unit for hydraulic hoists
Unit manufacturing costs:
Variable labor 825
Variable overhead 420
Fixed overhead 660
Total unit manufacturing costs $2,455
Unit marketing costs:
Total unit marketing costs 1,045
Total unit costs $3,500
II. Statement of the Problem:
How can Hospital Supply Inc. maximize its profit given various scenarios?
1. To be able to determine how much to sell to achieve profit 2. To identify alternative choices that will provide optimal profit for Hospital Supply Inc. or minimize losses
1. Mark down price of hydraulic hoist per unit from $4,350 to $3,850 assuming that the market estimates a monthly volume increase of 3, 500 units per.
|ADVANTAGES |DISADVANTAGES | |Lower prices increase consumers demand |Lower prices reduce incomes | |Increase in market share |Reduction in product availability |
2. Accept government contract
|ADVANTAGES |DISADVANTAGES | |Invariable orders |Income difference of $617,500 | |Guaranteed income |Maximization of availability capacity |
3. Penetrate foreign market
|ADVANTAGES |DISADVANTAGES | |Opportunity for wider market share |Shipping costs may vary from time to time | |Increase in sales for there is a chance for higher foreign demand|Shortage in local supplies | |even there is a decrease in local demand | |
4. Sell obsolete units in acceptable selling prices
|ADVANTAGES |DISADVANTAGES | |Additional income |Difficult to sell |
5. Accept third party contractor in producing 1000 hydraulic hoist units per month for $2,475/unit
|ADVANTAGES |DISADVANTAGES | |Increase in supplies |Decrease income by $31,000 | |Reduce in marketing and manufacturing costs |Contractor costs is expensive than in-house costs |
6. Accept third party contractor with $2,475/unit proposal except that the idle facilities will be use to produce 800 modified hoist for hospital operating rooms.
|ADVANTAGES |DISADVANTAGES |...