Hospital Supply Inc
HOSPITAL SUPPLY, INC. Chapter 16: The Behavior of Costs Francisco Rivero Raymond Tenorio Ailene Valdemoro CASE BACKGROUND Hospital Supply, Inc. ... On March 1 a contract offer is made to Hospital Supply by the federal government to supply 500 units to Veterans Administration hospitals for delivery by March 31. Because of an unusually large number of rush orders from their regular customers, Hospital Supply plans to produce 4,000 units during March, which will use all available capacity. ... Hospital Supply has an opportunity to enter a foreign market in which price competition is keen. ... What is the minimum unit price Hospital Supply should consider for this order of 1,000 units? TOTAL COST QUANTITY PER UNIT Sales $ 3,932,000 /1000 Units $ 3,932 Variable Costs 2,480,000 Contribution Margin $ 1,452,000 Fixed Costs 1,452,000 Profit $ - In order to break-even, Hospital Supply should sell at $3,932 per unit to the foreign market. ... Variable Manufacturing Costs ($1,795 * 200 units) $ 359,000 Variable Marketing Costs (($275 * 200 units) 55,000 Total Variable Costs $ 414,000 Fixed Overhead ($660 * 200 Units) $ 132,000 Fixed Marketing Costs ($770 * 200 Units) 154,000 Total Fixed Costs $ 286,000 TOTAL COSTS QUANTITY PER UNIT Sales $ 700,000 /200 Units $ 3,500 Variable Costs 414,000 Contribution Margin $ 286,000 Fixed Costs 286,000 Profit $ - In order to break even, Hospital Supply should sell the obsolete models of the hoist for $3,500.