Costs per Unit for Ivaraulie Maists

- Variable

Vanable labor

Vanable overhead

Total

unit manutacturing cosu

Unit marietino costs

A Variable

Fixed

Total unit marketing cox

oral una corte

$550~

825

420

660

275

770

$2,455

1,045

$3,500

Questions

The following questions refer only to the data given in

Exhibit I. Unless otherwise stated, assume there is no

connection between the situations descabedinthe

questions; treat each independently. Unless otherwise

stated, assume a regular selling price of $4,350 per

unit. Ignore Income waxes and other Costs nor mch

tioned in Exhibit 1 or in a question itself.

What is the break-even Volume in units an sales

dollars?

Market research estimates that monthly VOlume

could increase to 3,300 units, which is well within

hoist production capacity limitations,

were cut from S4.350 to 53,850 per unit. Assuming

the cost behavior patterns implied by the data in

Exhibit 1 are correct, would you recommend that

this action be taken? What would be the impact on

monthlv s3 es. costs, anduncome

Un March , a contract offer is made to Hospital

Supply by the federal government to supply $00

units to Veterans Administration hospitals for deliv-

ery by March 31. Because

oran unusually laiRc

number of rush orders from its resular customers.

Hospital Supply plans to produce 4,000 units during

March, which will use all available capacity. If the

government Oract is accepted, 500 units normalk

sold to regular customers would be lost to a com.

petitor. The contract given by the government would

reimburse the government's share of March produc

tion costs, plus pay a hxed tee (profit) of $275.000

(There would be no vanable marketing costs in-

curred on the government's units.) What impact

Would accepang the ROvemment contract have on

March income

Hospital Supply has an opportunity to enter a for-

eten marxet in Which once competton is keen. An

attraction of the foreign market is that demand there

is greatest when demand in the domestic market is

quite low; thus, idle production facilities could be

used without affecting domestic business. An OfVct

for 1,000 units is being sought at a below-normal

price in Order to enter this marXct. Shipping Cost

for this order will amount to S410 per unit, while

total costs Of Obtaining the contract (marketing

costs) will be $22,000. Domestic business would be

unaffected ov this order. What is the minimum unil

price Hospital Supply should consider for this order

of 1,000 units?

An inventor of 200 units of an obsolete model of

the hoist remains in the stoskroomhese must be

sold through regular channels at reduced prices or

ine Inventory will soon be valueless. What is the

minimum price that would be acceptable in Schlin.

these unite

6. A proposal is received from an outside contracio

who will maxe

1,000 hydraulic hoist units per

month and ship them directly to Hospital Supply's

CUstolets as Ofeers are received from hospital Sup

ply's sales force. Hospital Supply's fixed marketing

costs would be unaffected, but its variable marketing

costs would be cut by 20 percent (to $220 per unil)

for these 1,000 units produced by the contracio.

Hospital Supply's plant would operate at twp-thirds

of its normal level, and total fixed manufacturing

costs would be cut by 30 percent (to $1,386,000).

What in-house unit cost should be used to

compare

with the quotation received from the supplier?

Should the proposal be accepted for a price (i.e.,

payment to the contractor) of $2,475 per unit?

Assume the same facts as above in Question 6 ex-

cept that the idle facilities would be used to produce

800 modified hydraulic hoists per month for use in

hospital operating rooms. These modified hoists

Chapter 16 The RebaviseCont

could be sold for $4,950 each, while the variable

manufacturing costs would be $3,025 per unit. Vari-

able marketing costs would be $550 per unit. Fixed

marketing and manufacturing costs would be un-

changed whether the original 3,000 regular hoists

were manufactured or the mix of 2,000 regular

hoists plus 800 modified hoists was produced. What

is the maximum purchase price per unit that Hospi-

tal Supply should be willing to pay the outside con-

tractor? Should the proposal be accepted for a price

of $2,475 per unit to the contractor?

EXHEBT 1 Cents per Dnit for Hydrasilie Heists Chacter 16 The Arkwer af Cow 483 EXHEBT 1 Cents per Dnit for Hydrasilie Heists Chacter 16 The Arkwer af Cow 483