Hospital Hoist is a supplier of hydraulic hoists for hospital use. These hoists are used when patients have a broken leg that needs to be elevated. The hoists are usually sold at a price of €760 and the normal production and sales volume of the company is 30,000 units/month. The company uses a standard, fully absorbed, usage-based costing system. Ignore taxes. Company cost information is below.

Unit Manufacturing and Marketing Costs: (€)

Direct Materials 110

Direct labor 150

Variable manufacturing overhead 50

Fixed manufacturing costs 120

Variable marketing costs 50

Fixed Marketing Costs 140

A. Find the breakeven volume in units (that is, the volume where profit = 0).

B. Should Hospital Hoist increase monthly production and sales to 35,000 units and reduce the price to €680/unit?

C. The company has 2,300 units of an obsolete model. These must be sold through regular channels (incurring normal variable marketing costs) at reduced prices, or the inventory will soon become worthless. Assume that every two obsolete units sold will displace the sale of one unit of the current model. What is the minimum acceptable price for these units?

D. An outside contractor wants to manufacture and ship 10,000 units per month directly to the company's customers, but the customers would continue to pay Hospital Hoist directly. The company's variable marketing costs would be reduced by 20% for the 10,000 subcontracted units. The company would produce hoists internally at 2/3 of its normal level and its total fixed manufacturing costs would be reduced by 25%. What is the maximum price per unit that Hospital Hoist would be willing to pay to the outside contractor?

E. Same facts as Part D, but now if Hospital Hoist subcontracts production of 10,000 hoists/month, the idle capacity could be used to produce 8,000 modified hoists/month that could sell for €900 each. Variable manufacturing costs would be €550/unit and variable marketing costs would be €100/unit for the modified hoists. Total fixed costs would be the same as when producing 30,000 regular hoists. What is the maximum price per unit that Hospital Hoist would be willing to pay to the outside contractor?

Answer rating: 100% (QA)

A The breakeven volume in units can be calculated by setting the total revenue equal to the total cost and solving for the quantity The total revenue ... View the full answer