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Question 7.1, Finance Basics

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Assume the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data estimates.

Variable costs $ 5.00
Annual fixed cost $500,000
Annual overhead allocations $ 50,000
Expected annual utilization 10,000

a. What pre-visit price must be set for the service to break even? To earn an annual profit of $100,000?
b. Repeat part a., but assume that the variable cost is $10.
c. Return to the data given in the problem. Again repeat part a, but assume the direct costs are $1,000, 000.
d. Repeat part a, assuming both $10 in variable costs and $1,000,000 in direct fixed cost.

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