# Big Sky Dermatology Specialists are setting the price on a

Big Sky Dermatology Specialists are setting the price on a new office location. Here are the relevant data estimates:
Variable Cost Per Visit \$8.00
The annual Direct fixed Cost is \$650,000
Expected annual utilization of 10,000 visits

Required

⦁ What per visit price must be set for the service to break even? To earn an annual profit of \$100,000?

Per visit price= Variable cost + fixed cost + annual overhead / total # number of visits
(variable cost *volume)

Per visit price = 8*10,000 + 650,000 + 65,000/ 10,000
= 80,000 + 650,000 + 65,000/ 10,000
= 795,000/10,000
Per visit price = 79.5

Per visit price = total cost incurred by + desired profit/ total number of visits
=79.5*10,000 + 100,000 /10,000
= 895,000/10,000
= 89.5
To earn an annual profit of \$100,000 the per-visit price must be set at \$89.5

⦁ Repeat Part a. but assume that the variable cost per visit is \$12.

Per visit price = 12*10,0000 + 650,000 + 65,000/ 10,000
=120,000 + 650,000 + 65,000/ 10,000
= 835,000/10,000
Per visit price = 83.5
Per visit price = total cost incurred by + desired profit/ total number of visits
=83.5*10,000 + 100,000 /10,000
= 935,000/10,000
= 93.5
To earn an annual profit of \$100,000 the per-visit price must be set at \$93.5

⦁ Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are \$1,000,000.
Per visit price = 8*10,000 + 1,00,000 + 65,000/ 10,000
= 80,000 + 1,000,000 + 65,000/ 10,000
= 1,145,000/10,000
Per visit price = 114.5
Per visit price = total cost incurred by + desired profit/ total number of visits
=80,000 + 1,000,000 + 100,000 /10,000
= 1,1805,000/10,000
= 118
Per visit price must be set for the service to break even \$               114.50
Per visit price must be set for the service to achieve a target profit of \$  118.00

⦁ Repeat Part an assuming both a \$10. Variable cost and \$1,000,000 in direct fixed costs.
Per visit price = 10*10,000 + 1,00,000 + 65,000/ 10,000
= 100,000 + 1,00,000 + 65,000/ 10,000
= 1,165,000/10,000
Per visit price = 116.5

Per visit price = total cost incurred by + desired profit/ total number of visits
=1,165,000 + 100,000 /10,000
= 1,265,000/10,000
= 126.5

Per visit, the price must be set for the service to break even \$               \$116.50
Per visit price must be set for the service to achieve a target profit    \$  126.50

Related Book For Statistics Data Analysis and Decision Modeling

5th edition

Authors: James R. Evans

ISBN: 978-0132744287

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