Janet Gilbert is director of labs. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her cost for these contracts are $50,000, of which $7000 is the variable cost of supplies. The rest is not avoidable fixed cost. She currently charges an average of $20 per test. She is thinking of lowering her price by 20% in hopes of raising her current volume of 10,000 tests by 15 percent. If she does so, she expects her variable cost per test will go up by 4 percent. Determine the current and predicted: revenues, variable costs, and total contribution margin and product margin. What do you recommend she do? Why?
Janet Gilbert spends 7000$ on variable cost of supplies
And rest 43000$ is the unavoidable fixed cost .
Currently she is taking 20$ for a test and she planning to reduce it to 20% means to 16$ so that she can increase the number of volumes from 10000 to 11500 .
If she does this , then her variable cost will go up by 4% means the variable cost will become 7280 $.
It's totally a loss for her if she decrease the rates per test to increase the number of volumes because when she had 10000 volume with a rate of 20$ ,she used to earn 200000$ but if she decreases the rate to $16 to increase the volume by 11500 she will get only 184000$ ,then what is the profit left , it will only increase the expenses . It's better not to decrease the rate .
Janet Gilbert is director of labs. She has some extra capacity and has contracted with some...
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environment
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