Hospital Supply, Inc. produced hydraulic hoists that were used

Customer Question

Hospital Supply, Inc. produced hydraulic hoists that were used by hospitals to move bedridden patients. The cost of manufacturing and marketing hydraulic hoists at the company's normal volume of 3,000 units per month are shown in Exhibit 1. Exhibit 1 COSTS PER UNIT FOR HYDRAULIC HOISTS Unit Manufacturing Costs: Variable materials .................. $100 Variable Labor ...................... 150 V ariable overhead .................. 50 Fixed overhead ..................... 120 Total Unit Manufacturing Costs... $420 Unit Marketing Costs: Variable .................................... 50 Fixed ........................................ 140 Total Unit Marketing Costs............. $190 Total Unit Costs .......................... $610 Questions The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between the situations described in the questions; each is to be treated independently. Unless otherwise stated a regular selling price of $740 per unit should be assumed. Ignore income taxes and other costs that are not mentioned in Exhibit 1 or in a question itself. * 1. What is the break-even volume in units? In sales dollars? (The break-even volume is that volume at which sales revenues equal total expenses.) * 2. Market research estimates that volume could be increased to 3,500 units, which is well within hoist production capacity limitations, if the price were cut from $740 to $650 per unit. Assuming the cost behavior patterns implied by the date in Exhibit 1 are correct, would you recommend that this action be taken? What would be the impact on monthly sales, costs, and income? * 3. 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. If the government order is accepted, 500 units normally sold to regular customers would be lost to a competitor. The contract given by the government would reimburse the government's share of March productions costs, plus pay a fixed fee (profit) of $50,000. (There would be no variable marketing costs incurred on the government's units.) What impact would accepting the government contract have on March income? * 4. Hospital Supply has an opportunity to enter a foreign market in which price competition is keen. An attraction of the foreign market is that demand there is greatest when demand in the domestic market is quite low; thus ideal production facilities could be used without affecting domestic business. An order for 1,000 units is being sought at a below-normal price in order to enter this market. Shipping costs for this order will amount to $75 per unit, while total costs of obtaining the contract (marketing costs) will be $4,000. Domestic business would be unaffected by this order. What is the minimum unit price Hospital Supply should consider for this order of 1,000 units? * 5. An inventory of 230 units of an obsolete model of the hoist remains in the stockroom. These must be sold through regular channels at reduced prices, or the inventory will soon be valueless. What is the minimum price that would be acceptable in selling these units? * 6. A proposal is received from an outside contractor who will make and ship 1,000 hydraulic hoist units per month directly to Hospital Supply's customers as orders are received from Hospital Supply's sales force. Hospital Supply's fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 20 percent for these 1,000 units produced by the contractor. Hospital Supply's plant would operate at two thirds of its normal level, and total fixed manufacturing costs would be cut by 30 percent. 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 $425 per unit? * 7. Assume the same facts as above in #6 except that the idle facilities would be used to produce 800 modified hydraulic hoists per month for use in hospital operating rooms. These modified hoists could be sold for $900 each, while the cost of production would be $550 per unit variable manufacturing expense. Variable marketing costs would be $100 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 3,000 regular hoists were manufactured or the mix of 2,000 regular hoists plus 800 modified hoists were produced. What is the maximum purchase price per unit that Hospital Supply should be willing to pay the outside contractor? Should the proposal be accepted for a price of $425 per unit to the contractor? I need the answers to 4-7

Submitted: 856 days and 6 hours ago.

Category: Homework

Value: $38

Status: CLOSED

Expert: akch2002 replied856 days and 6 hours ago.

Can you upload word file and exhibits as mentioned in the question? It will be easy to understand the problem.

Customer replied856 days and 6 hours ago.

CASE 14-3: HOSPITAL SUPPLY, INC. Hospital Supply, Inc. produced hydraulic hoists that were used by hospitals to move bedridden patients. The cost of manufacturing and marketing hydraulic hoists at the company's normal volume of 3,000 units per month are shown in Exhibit 1. Exhibit 1 COSTS PER UNIT FOR HYDRAULIC HOISTS Unit Manufacturing Costs: <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr> <td width="279" align="top" valign="top"> Variable materials .................. </td> <td width="136" align="top" valign="top"> $100 </td> </tr> <tr> <td width="279" align="top" valign="top"> Variable Labor ...................... </td> <td width="136" align="top" valign="top"> 150 </td> </tr> <tr> <td width="279" align="top" valign="top"> Variable overhead .................. </td> <td width="136" align="top" valign="top"> 50 </td> </tr> <tr> <td width="279" align="top" valign="top"> Fixed overhead ..................... </td> <td width="136" align="top" valign="top"> 120 </td> </tr> <tr> <td width="279" align="top" valign="top"> Total Unit Manufacturing Costs... </td> <td width="136" align="top" valign="top"> $420 </td> </tr> </tbody></table> Unit Marketing Costs: <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr> <td width="317" align="top" valign="top"> Variable .................................... </td> <td width="106" align="top" valign="top"> 50 </td> </tr> <tr> <td width="317" align="top" valign="top"> Fixed ........................................ </td> <td width="106" align="top" valign="top"> 140 </td> </tr> </tbody></table> <table border="1" cellspacing="0" cellpadding="0"> <tbody><tr> <td width="319" align="top" valign="top"> Total Unit Marketing Costs............. </td> <td width="319" align="top" valign="top"> $190 </td> </tr> <tr> <td width="319" align="top" valign="top"> Total Unit Costs .......................... </td> <td width="319" align="top" valign="top"> $610 </td> </tr> </tbody></table> Questions The following questions refer only to the data given above. Unless otherwise stated, assume there is no connection between the situations described in the questions; each is to be treated independently. Unless otherwise stated a regular selling price of $740 per unit should be assumed. Ignore income taxes and other costs that are not mentioned in Exhibit 1 or in a question itself. 4. Hospital Supply has an opportunity to enter a foreign market in which price competition 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 order for 1,000 units is being sought at a below-normal price in order to enter this market. Shipping costs for this order will amount to $75 per unit, while total costs of obtaining the contract (marketing costs) will be $4,000. Domestic business would be unaffected by this order. What is the minimum unit price Hospital Supply should consider for this order of 1,000 units? 5. An inventory of 230 units of an obsolete model of the hoist remains in the stockroom. These must be sold through regular channels at reduced prices, or the inventory will soon be valueless. What is the minimum price that would be acceptable in selling these units? 6. A proposal is received from an outside contractor who will make and ship 1,000 hydraulic hoist units per month directly to Hospital Supply's customers as orders are received from Hospital Supply's sales force. Hospital Supply's fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 20 percent for these 1,000 units produced by the contractor. Hospital Supply's plant would operate at two thirds of its normal level, and total fixed manufacturing costs would be cut by 30 percent. 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 $425 per unit? 7. Assume the same facts as above in #6 except that the idle facilities would be used to produce 800 modified hydraulic hoists per month for use in hospital operating rooms. These modified hoists could be sold for $900 each, while the cost of production would be $550 per unit variable manufacturing expense. Variable marketing costs would be $100 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 3,000 regular hoists were manufactured or the mix of 2,000 regular hoists plus 800 modified hoists were produced. What is the maximum purchase price per unit that Hospital Supply should be willing to pay the outside contractor? Should the proposal be accepted for a price of $425 per unit to the contractor? I need the answers for numbers 4-7 Hints #4 Focus on new cost. This is an incremental sale. #5 Remember the concept of sunk cost. Template for #6 All in house 1000 units Contracted Total Revenue Total Variable Manufacturing cost Total variable marketing cost Total Contribution Margin Total Fixed Manufacturing cost Total fixed Marketing Cost Payment to Contractor 0 x profit x - this is the amount that will make the profit the same as in-house Template for #7 3000 Reg Contract 1000 Reg Hoists hoists Produced Produce 800 modified hoists in house regular(in)/Regular(out)/Modified/total Total Revenue Total Variable Mfg Cost Total Variable Mkt Cost Total Contrbution margin Total Fixed mfg cost Total Fixed Mkt cost payment to contractor Profit (X) X maximum amount you can pay to contractor and have the same profit as 3000 all in house.

Expert: Neo replied855 days and 22 hours ago.

Good day!

Welcome to JustAnswer!

Thank you for requesting me.

Can I have the title, edition and name of the authors of your book?

Thank you so much! :)

Customer replied855 days and 21 hours ago.

This problem came from a work sheet, my class is managerial accounting. It looks like you have answered this problem before. I am not sure of the book title , edition and name of authors of the book for the problem.

Accepted Answer

Expert: Neo replied855 days and 21 hours ago.

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