Break-Even Sales: Sales for Target Profit Health-Temp Company is a placement age
ID: 2525493 • Letter: B
Question
Break-Even Sales: Sales for Target Profit
Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinics throughout the metropolitan area. Health-Temp Company believes it will place temporary nurses for a total of 29,000 hours next year. Health-Temp charges the hospitals and clinics $110 per hour and has variable costs of $95.70 per hour (this includes the payment to the nurse). Total fixed costs equal $404,690.
Required: 1. Calculate the contribution margin per unit and the contribution margin ratio (express the ratio as a decimal rather than a percentage). If required, round your answers to two decimal places.
Contribution margin per unit $:
Contribution margin ratio:
2. Calculate the sales revenue needed to break even.
3. Calculate the sales revenue needed to achieve a target profit of $88,660
4. What if Health-Temp had target operating income (profit) of $108,680? Would sales revenue be larger or smaller than the one calculated in Requirement 3? By how much?
Explanation / Answer
Answer:-1)- Contribution margin per unit/hour=Revenue per hour-Variable cost per hour
=$110 per hour - $95.70 per hour =$14.30 per hour
Contribution margin ratio =( Contribution margin per hour/ Revenue per hour)*100
=($14.30 per hour/$110 per hour)*100 =13%
2)-Sales revenue needed to break even =Fixed cost/ Contribution margin ratio
=$404690/13% =$3113000
3)- Sales revenue to achieve target profit= Fixed cost+ Target profit/ Contribution margin ratio
=$404690+$88660/13%
=$493350/13%
=$3795000
4) If Health-Temp had target operating income (profit) of $108680, the sales revenue would be larger than the one calculated in Requirement 3 (ie-$3949000-$3113000=$836000
Explanation:-
$404690+$108680/13%
=$513370/13%
=$3949000