Hospital Supply Case Study

4915 WordsFeb 7, 201120 Pages
Table of Contents I. INTRODUCTION 2 II. STATEMENT OF PROBLEM 2 III. OBJECTIVES 3 IV. SCENARIOS 3 Question 1 5 Question 2 7 Question 3 10 Question 4 12 Question 5 13 Question 6 14 Question 7 16 V. CONCLUSION 18 Bibliography 19 INTRODUCTION The case is about manufacturing company, Hospital Supply, Inc., that produced hydraulic hoists for the local market. The hydraulic hoist is useful to the hospital for moving bedridden patients. Most of sales made to local hospitals. Significant to activity of sales and production of hydraulic hoist, there are costs incurred due to the consumption of resources. Presented in Exhibit 1 are the costs of manufacturing and marketing…show more content…
The sales price per unit is constant v. The behavior of costs and revenue is linear vi. The quantity of products produced and sold is the same. First attempt is to rearrange the variable and fixed costs as per shown in Figure 1. Figure 1 - Variable and Fixed Cost Variable Cost per unit Unit manufacturing cost: Variable materials $550 Variable labor $825 Variable overhead $420 Variable manufacturing cost /unit $1795 Unit marketing costs: Variable $275 Total Variable cost per unit $2070 [pic] Fixed Cost per unit Unit manufacturing cost: Fixed overhead $660 Unit marketing costs: Fixed $770 Fixed cost /unit $1430 [pic] Information given that company normal manufacturing volume 3000 units and Regular Selling Price $4350/unit Total fixed cost (3000 units x $1430) $4,290,000 Question 1 What is the break-even volume in units? In sales dollars? Solution: Break-even analysis is based on the assumption that all the costs related to the production can be divided into two categories: Variable and Fixed costs. The break-even volume is where quantity at which total revenue equal to total costs. Therefore break-even point is where sales revenue equals total variable costs plus total fixed costs, and contribution margin equals fixed costs.[3] Using the previous information

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