Question

1. Pet Energy Therapy Association (PETA) treats peoples’ pets,and has the following cost structure:

Charge per therapy session $100

Variable cost per therapy session $ 20

Fixed costs $100,000

They expect to perform 2,000 two hour session each year (8/day,5 days/week, 50 weeks/year).

A. Construct PETA’s profit and loss statement.Profit/Loss $

B. How many sessions must PETA’s perform tobreakeven?

C. To earn a profit of $80,000, how many sessions mustthey provide this year?

D. If there is one fulltime employee, fully booked, who spendsone hour on each session (8 sessions per day, 40 per week,2,000/year), what would we need to assume about the additionalsessions needed to earn $100,000?

2.

St. Payne Med Center is using the step-down method to allocatecosts. They have two support departments (Record Keeping andCleaning), and two patient service departments (Eye Care and DentalCare). Some of the Record Keeping costs are allocated to Cleaningbefore the support department costs are allocated to patientservice departments. Record Keeping costs are allocated based onthe number of employees, while Cleaning costs are allocated by thenumber or rooms. The following data has been collected:

Support Departments Patient Revenue Departments

Record Keeping Cleaning Eye Care Dental Care

Department Costs $ 13,000 $10,000 $32,000 $60,000

Number of Employees 2 4 3 6

Number of Rooms 1 1 2 3

a. What amount of the Record Keeping is allocated toCleaning?

b. What amount of the Record Keeping is allocated to Eye Care?$

c. What amount of the Record Keeping is allocated to DentalCare? $

d. What amount of the Cleaning is allocated to Eye Care?$

e. What amount of the Cleaning is allocated to Dental Care?$

f. After Allocation, What are Eye Care’s total costs?$

g. After Allocation, What are Dental Care’s total costs?