Questions -
Q1. Break-even and other CVP relationships
Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.
a. How many patient days does the hospital need to break even?
b. What level of revenue is needed to earn a target income of $540,000?
c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?
Q2. Direct and absorption costing
The information that follows pertains to Consumer Products for the year ended December 31, 20X6.
Inventory, 1/1/X6 24,000 units
Units manufactured 80,000
Units sold 82,000
Inventory, 12/31/X6 ? units
Manufacturing costs:
Direct materials $3 per unit
Direct labor $5 per unit
Variable factory overhead $9 per unit
Fixed factory overhead $280,000
Selling & administrative expenses:
Variable $2 per unit
Fixed $136,000
The unit selling price is $26. Assume that costs have been stable in recent years.
Instructions:
a. Compute the number of units in the ending inventory.
b. Calculate the cost of a unit assuming use of:
1. Direct costing.
2. Absorption costing.
c. Prepare an income statement for the year ended December 31, 20X6, by using direct costing.
d. Prepare an income statement for the year ended December 31, 20X6, by using absorption costing.