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Unformatted text preview: In-class Exercise Chapter 5 CVP (Cost volume profit) Analysis Seattle Grace Hospital plans to invest in a new piece of CT imaging equipment. The hospital estimates that it can bill $1,500 per scan. Preliminary market assessments indicate that demand will be less than 5,000 scans per year. The hospital has the choice between two different types of spiral CT that can fill its imaging needs. Each scanner has a capacity of 5,000 scans per year, but involves a different mix of labor and capital. Scanner A will result in total fixed costs of $1,000,000 per year and would yield a profit of $500,000 if the hospital produced and billed for 5,000 scans. Scanner B will result in total fixed costs of $800,000 per year and would yield a profit of $450,000 per year if the hospital produced and billed for 5,000 scans. Price/ scan = $1,500 Demand < 5,000 (this means there may be multiple answers but only ones with < 5,000 will be correct) 1. Compute the breakeven number of scans for each CT scanner. Scanner A: FC = $1,000,000 Profit = $500,000 500,000 = 5,000*(P-VC) – 1,000,000 CM = 300 BE 0 = 300 * x – 1,000,000 X= 3,334 scans for scanner A Scanner B: FC = $800,000 Profit = $450,000 450,000 = 5,000*(P-VC) – 800,000 CM = 250 BE 0 = 250 * x – 800,000 X= 3,200 scans for scanner B 2. At what number of scans are the machines equally profitable? 300 * x – 1,000,000 = 250 * x – 800,000 X = 4,000 scans make the machines equally profitable ...
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This note was uploaded on 02/24/2010 for the course HPM 340 taught by Professor Reiter during the Spring '10 term at UNC.
- Spring '10