Question

A. is 801,600. I need B and C.

Cleaning Price per Unit $ 360 640 1,500 Variable Cost per Unit $200 620 860 Units Sold per Year 9,000 900 100 Filling Capping Variable costs include the labor costs of the dental hygienists and dentists. Fixed costs of $520,000 per year include building and equipment costs, marketing costs, and the costs of administration. Painless Dental Clinics is subject to a 20 percent tax rate on income. A cleaning "unit" is a routine teeth cleaning that takes about 45 minutes. A filling "unit" is the work done to fill one or more cavities in one session. A capping "unit" is the work done to put a crown on one tooth. If more than one tooth is crowned in a session, then the clinic counts one unit per tooth (e.g., putting crowns on two teeth counts as two units). Required: a. Given this information, how much will Painless Dental Clinics, Inc., earn each year after taxes? b. Assuming the given sales mix is the same at the break-even point, at what sales revenue does Painless Dental Clinics, Inc., break even? C. Assuming the given sales mix, at what sales revenue will the company earn $164,000 per year after taxes? d-1. Painless Dental Clinics, Inc., is considering becoming more specialized in cleanings and fillings. What would be the company's revenues per year if the number of cleanings increased to 12,000 per year, the number of fillings increased to 1,000 per year, while the number of cappings dropped to zero? With this change in product mix, the company would increase its fixed costs to $570,000 per year. What would be the effect of this change in product mix on the clinic's earnings after taxes per year? d-2. If the clinic's managers seek to maximize the clinic's after-tax earnings, would this change be a good idea?

Answer 1

Painless Dental Clinic, Inc.

B) Break even Analysis:

Sales mix,

Cleaning = 9,000/10,000 = 90%

Filling = 900/10,000 = 9%

Capping = 100/10,000 = 1%

Weighted average contribution per unit,

= Contribution per unit × Sales mix

	Selling price	Variable cost	Contribution per unit (C)	Sales mix (S)	(C × S)
Cleaning	360	200	160	90%	144
Filling	640	620	20	9%	1.8
Capping	1500	860	640	1%	6.4
					152.2

Break even point = Fixed cost / Weighted average contribution per unit

= $ 520,000 / $ 152.2 per unit = 3,417 unit (approximately)

Break even sales revenue:

	Break even units × Sales Mix × Selling price
Cleaning	3,417 units × 90% × $ 360	$ 11,07,108
Filling	3,417 units × 9% × $ 640	$ 196,819
Capping	3,417 units × 1% × $ 1,500	$ 51,255
		$ 13,55,182

c) Sales revenue, earn $ 164,00 per year after taxes ($ 205,000 before taxes) (= 164,000/0.8)

Selling units = (Fixed cost + Target Income) / Weighted average contribution per unit

= (520,000+205,000)/152.2

= 725,000/152.2 = 4,763 units (approximately)

Sales revenue:

	units × Sales mix × Selling price
Cleaning	4,763 units × 90% × $ 360	$ 15,43,212
Filling	4,763 units × 9% × $ 640	$ 2,74,349
Capping	4,763 units × 1% × $ 1500	$ 71,445
		$ 18,89,006