Case 16-1 Hospital Supply Inc.

Case 16-1: Hospital Supply, Inc.

Question 1:
Total fixed costs (TFC) = fixed costs per unit times normal volume =($660 + $770)*3,000 = $4,290,000. Contribution margin per unit = unit price minus unit variable costs = $4,350 - $2,070 = $2,280. $4,290,000 Break - even volume = ------------------ = 1,882 units $2,280

Break - even sales =1,882 units x $4,350 = $8,186,700

Question 2:
Effects on monthly shares, costs and income.

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Recommendation:
Lowering prices reduces income. Other factors such as reduction of available capacity and the capacity and the impact on market share, could also affect the decision.

Question 3:
Impact if the company will accept the government contract have on march income.

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Recommendation:
Don't accept contract

Question 4:
The minimum unit price the company should consider in entering the foreign market. Minimum price = variable manufacturing costs + shipping costs + order costs = $1,795 + $410 + $22,000/1,000 = $2,227
Recommendation:

At this price per unit, the $2,227,000 of differential costs caused by the 1,000-unit order will just be uncovered.

Question 5:

The minimum market price that would be acceptable in selling unsold inventory.

It should be $275 per unit variable marketing costs.

The manufacturing costs are sunk; therefore, any price in excess of the differential costs of selling the hoists will add to income. In this case, those differential costs are apparently the $275 per unit variable marketing costs, since the hoists are to be sold through regular channels; thus the minimum price is $275.

Question 6:

The price equivalent to the in-house costs of production.

Recommendation:

The maximum unit price is $2,444, therefore the $2,475 purchase price is not acceptable; it would decrease income by