Hospital Supply Case

Topics: Total cost, Cost, Costs Pages: 8 (1112 words) Published: July 27, 2010
Hospital Supply Inc.: A quantitative analysis

I. Introduction:
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 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

II. Statement of the Problem:
How can Hospital Supply Inc. maximize its profit given various scenarios?

III. Objectives:
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

IV. Scenarios

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.

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