Hospital Supply Case 16-1 Hospital Supply, Inc. 1.

Total fixed costs (TFC) = fixed costs per unit times normal volume =($660 + $770)*3,000 = $4,290,000. Contribution margin per unit = unit price minus unit variable costs = $4,350 - $2,070 = $2,280. Break-even volume: 4,290,000/2,280 = 1,882 units Break-even sales: 4,290,000/((4,350-2,070)/4,350) = $8,185,461 2. I recommend that this should not be taken because lowering prices will red uce the income. Other factors that will affect the decision will be the reductio n of the available capacity and the impact on market share. [pic] 3. I recommend that the contract should not be accepted. Income would be lower if t he contract with the government is accepted by a difference of $617,500. [pic] 4. Minimum price = variable mfg costs + shipping costs + order costs = $1,795 + $410 + $22,000/1,000 = $2,227 5. The manufacturing costs are sunk; therefore, any price in excess of the di fferential costs of selling the hoists will add to income. In this case, those d ifferential costs are apparently the $275 per unit variable marketing costs, sin ce the hoists are to be sold through regular channels; thus the minimum price is $275. 6. [pic] 7. [pic] With this, the maximum payment is $2,950,000. $2,475 should be accepted as the p rice per unit to the contractor. Case 16-3 Bill French 1. Bill French s assumptions:

a. All costs were assumed constant. Fixed costs remain fixed over all op erations mentioned and variable costs remain variable. b. French assumed that the sales price and sales mix remain constant. c. French assumed that the sales break-even point is based on a direct r elationship of sales pattern and production. 2. Break-even analysis: Given: 10% increase in VC, $60,000 increase per month in fixed costs. FC = 3,690,000 VC = $3.23 Break-even in units = 3,690,000/3.23 =...