Question

20. Breakeven. Zack Millman Clinic is seeking to provide sports-related health care services to high schools in the area. Zack Millman estimates that the cost to provide care would be $2,500 plus $15 per athlete per month on a nine-month basis. The high schools jointly offered to pay the clinic $15,000 for a nine-month contract to cover 85 athletes. a. If the clinic accepts this bid and contracts with the high schools, will it earn a profit or loss for the year? How much? b. What would the contract price have to be for Millman to break even?

Answer 1

a)

Fixed over head is $2,500

Variable expense is $ 15 for nine months

Variable cost for 85 for 1 year = No of athletes * variable rate per month * no of months = (85 * $15) * 12 $1,275 * 9 = $11,475

Total cost = $11,475 + $2,500 = $13,975

Profit on contract = $15,000 - $13,975 = $1,025

b)

Fixed Costs ÷ (Price - Variable Costs) = Break even Point in Units  

Price of service to 1 athlete = Total price / no of athlete = $15,000 / 85 = 176.50

= $2,500 / ($176.50 -1$5) = $2500 /161.5 = 15.47 or 16 Athlete

c)

Profit for one year = 8000

Expected profit for month = $8,000 / 12 = $ 667.00

Cost per month = $13,975 / 9 months = $1553.00

Total Selling price = cost per month + expected profit per month = $1553 + $667 = $2220

Price per athlete = $ 2220/ no of athlete = $2,220 / 85 = $26 Per athlete