Service Line Deletion

Assume contribution margin was consistent for each product for the past three years.
Numbers are in thousands

	Radiology	OBGYN	Surgery	Trauma	Rehab	Service
Description						Total

Revenue
Scranton	$1,400	$1,200	$2,300	$4,500	$1,200	$10,600
Wilkes Barre	575	900	1,500	1,000	2,300	6,275
Total Revenue	$1,975	$2,100	$3,800	$5,500	$3,500	$16,875

Variable Costs
Flex Labor	$400	$400	$1,200	$3,500	$900	$6,400
Costs of Goods sold	500	650	700	1,600	1,400	4,850
Supplies	100	60	100	1,200	800	2,260
Total Variable Cost	$1,000	$1,110	$2,000	$6,300	$3,100	$13,510
Contribution Margin	$975	$990	$1,800	$(800)	$400	$3,365

Fixed Costs	$450	$325	$475	$500	$450	$2,200
Net Income/Loss	$525	$665	$1,325	$(1,300)	$(50)	$1,165



1) Assuming fixed costs remain constant for a three (3) year period, decide on which servicet you would delete (if any) to increase profit margin (net income)





2) Based on your determiniation, delete the service(s) you decided on, equally distribute the fixed costs to the other service
line that you have maintained, and calculate the new profit.




3) What other critical review needs to be considered before deleting a service line even though the contribution margin may be negative

byzantiummoose662

You are considering a new product launch. The project will cost $2,150,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 150 units per year; price per unit will be $28,000, variable cost per unit will be $17,000, and fixed costs will be $580,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 34 percent.

The unit sales, variable cost, and fixed cost projections given above are probably accurate to within Â±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.)

Scenario	Upper bound	Lower bound
Unit sales			units
Variable cost per unit	$	$
Fixed costs	$	$

Scenario	NPV
Base-case	$
Best-case	$
Worst-case	$

b.	Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

ÎNPV/ÎFC

c.	What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Accounting break-even

units

NTN Company's market for the Model 55 has changed significantly, and NTN has had to drop the price per unit from $265 to $125. There are some units in the work in process inventory that have costs of $150 per unit associated with them. NTN could sell these units in their current state for $100 each. It will cost NTN $10 per unit to complete these units so that they can be sold for $125 each.

3.	A new employee looks at the analysis and exclaims, âWe'll lose money with either of these alternatives! Let's just throw these units in the trash!â Suppose the alternative to trashing is choosing the more profitable of the two alternatives (that the new employee looked at and did not like). What effect will the trashing option (that the new employee wants) have on net income?
	A)	Net income will increase by $35 per unit for each unit discarded.
	B)	Net income will decrease by $115 per unit for each unit discarded.
	C)	It will have no effect on net income.
	D)	Net income will decrease by $100 per unit for each unit discarded.

4.	When the incremental revenues and expenses are analyzed, the company is better off by
	A)	$15 per unit if they complete the units.
	B)	$25 per unit if they sell the units in their current state.
	C)	$10 per unit if they sell the units in their current state.
	D)	$125 per unit if they complete the units.

Use the following information to answer questions 7-8:

The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.

7.	If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
	A)	Total fixed costs will increase by $10,500.
	B)	Net income will increase by $16,320.
	C)	Net income will increase by $26,480.
	D)	Total fixed costs will remain the same.

8.	If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
	A)	$189,400
	B)	$173,600.
	C)	$197,400
	D)	$155,680.

Use the following information to answer questions 7-8:

The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.

7.	If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
	A)	Total fixed costs will increase by $10,500.
	B)	Net income will increase by $16,320.
	C)	Net income will increase by $26,480.
	D)	Total fixed costs will remain the same.

8.	If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
	A)	$189,400
	B)	$173,600.
	C)	$197,400
	D)	$155,680.

Use the following information to answer questions 7-8:

The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.

7.	If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
	A)	Total fixed costs will increase by $10,500.
	B)	Net income will increase by $16,320.
	C)	Net income will increase by $26,480.
	D)	Total fixed costs will remain the same.

If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?

$189,400

$173,600.

$197,400

$155,680.

Use the following information to answer questions 7-8:

The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.

7.	If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
	A)	Total fixed costs will increase by $10,500.
	B)	Net income will increase by $16,320.
	C)	Net income will increase by $26,480.
	D)	Total fixed costs will remain the same.

8.	If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
	A)	$189,400
	B)	$173,600.
	C)	$197,400
	D)	$155,680.

chocolategrasshopper892

Weekly leaderboard

Home

Homework Help 3,900,000

Finance 370,000