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
Annual overhead allocation of $65,000
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?
Insert your response here.

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.

Insert your response here.
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.
Insert your response here.
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.
Insert your response here.
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

Answer rating: 100% (QA)

Answer Step 1 Part A Calculation of per visit price is as follows The resul... View the full answer