Allied Laboratories is combining some of its most common tests into one-price packages. One such package will contain three tests that have the following variable costs: Test A Test B Test C Disposable syringe $3.00 $3.00 $3.00 Blood vial 0.50 0.50 0.50 Forms 0.15 0.15 0.15 Reagents 0.80 0.60 1.20 Sterile bandage 0.10 0.10 0.10 Breakage/losses 0.05 0.05 0.05 When the tests are combined, only one syringe, form, and sterile ban- dage will be used. Furthermore, only one charge for breakage/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required). a. As a starting point, what is the price of the combined test assuming marginal cost pricing? b. Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal? c. Allied estimates that 2,000 of the combined tests will be conducted during the first year. The annual allocation of direct fixed and overhead costs totals $40,000. What price must be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test?
Allied Laboratories is combining some of its most common tests into one-price packages. One such package will contain three tests that have the following variable costs: Test A Test B Test C Disposable syringe $3.00 $3.00 $3.00 Blood vial 0.50 0.50 0.50 Forms 0.15 0.15 0.15 Reagents 0.80 0.60 1.20 Sterile bandage 0.10 0.10 0.10 Breakage/losses 0.05 0.05 0.05 When the tests are combined, only one syringe, form, and sterile ban- dage will be used. Furthermore, only one charge for breakage/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required). a. As a starting point, what is the price of the combined test assuming marginal cost pricing? b. Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal? c. Allied estimates that 2,000 of the combined tests will be conducted during the first year. The annual allocation of direct fixed and overhead costs totals $40,000. What price must be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test?
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 7P
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Question
Transcribed Image Text:Allied Laboratories is combining some of its most common tests into
one-price packages. One such package will contain three tests that
have the following variable costs:
Test A
Test B
Test C
Disposable syringe
$3.00
$3.00
$3.00
Blood vial
0.50
0.50
0.50
Forms
0.15
0.15
0.15
Reagents
0.80
0.60
1.20
Sterile bandage
0.10
0.10
0.10
Breakage/losses
0.05
0.05
0.05
When the tests are combined, only one syringe, form, and sterile ban-
dage will be used. Furthermore, only one charge for breakage/losses
will apply. Two blood vials are required, and reagent costs will remain
the same (reagents from all three tests are required).
a. As a starting point, what is the price of the combined test assuming
marginal cost pricing?
b. Assume that Allied wants a contribution margin of $10 per test.
What price must be set to achieve this goal?
c. Allied estimates that 2,000 of the combined tests will be
conducted during the first year. The annual allocation of direct
fixed and overhead costs totals $40,000. What price must be set
to cover full costs? What price must be set to produce a profit of
$20,000 on the combined test?
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