Hospital Supply Inc

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Case 16-1 Hospital Supply, Inc.
Accgt 835
Advanced Management Accounting

Hospital Supply, Inc. is a company that produces hydraulic hoists to assist hospitals in moving patients that are bedridden. The normal volume of hydraulic hoists that Hospital Supply produces is 3,000 units per month. To produce the 3,000 units per month it costs Hospital Supply $3,500 to produce each hydraulic hoist with $2,455 allocated toward the manufacturing costs per unit and $1,045 allocated for marketing costs per unit.

1. For Hospital Supply to break-even they need to produce 1882 units each month and in sales dollars they need to make $8,187,023. (See Appendix A) 2. Based on marketing projections Hospital Supply, Inc. could be able to
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Again we suggest that Hospital Supply does not accept the proposal price of $2,475 per unit from the contractor as the company will be able to make a greater amount of profit if they were to produce the entire 3,000 units by itself (See Appendix F).

Appendix A
Break Even (in units) : Total revenue = Total cost
4350 sales price * (x units)=[(660 fixed overhead + 770 fixed marketing)*3000 units] + [(550 variable materials + 825 variable labor + 420 variable overhead +275 variable marketing)*(x units)]
4350 (x) =4,290,000+2070 (x)
2280 (x) =4,290,000 X = 1882

Break Even ( in sales dollar)= fixed cost/ contribution percent =4,290,000/[(4350-2070)/4350] =4,290,000/ 0.524 = $ 8,187,023

Appendix B
Before: Sales= 3000 units * 4350 sales price = 13,050,000 Costs= 4,290,000 fixed cost + 2070 variable cost * 3000 units = 10,500,000 Income= 13,050,000 - 10,500,000 = $ 2,550,000

After: Sales= 3500 units * 3850 sales price = 13,475,000 Costs= 4,290,000 + 2070 * 3500 = 11,535,000 Income= 13,475,000 - 11,535,000 = $1,940,000

Appendix C
Without the government contract:
Sales= 4000 units * 4350 sales price = 17,400,000
Costs= 4,290,000 + 2,070 * 4000 =
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