Break-Even Sales: Sales for Target Profit Health-Temp Company is a placement age
ID: 2532151 • 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 23,500 hours next year. Health-Temp charges the hospitals and clinics $90 per hour and has variable costs of $75.60 per hour (this includes the payment to the nurse). Total fixed costs equal $321,000.
Required:
1. Calculate the contribution margin per unit and the contribution margin ratio.
2. Calculate the sales revenue needed to break even.
3. Calculate the sales revenue needed to achieve a target profit of $100,000.
4. What if Health-Temp had target operating income (profit) of $110,000? Would sales revenue be larger or smaller than the one calculated in Requirement 3? Why? By how much?
Show computation please.
Explanation / Answer
Answers
A
Revenue per hour
$ 90.00
B
Variable cost per hour
$ 75.60
C=A-B [Answer 1]
Contribution margin per unit
$ 14.40
D=C/A [Answer 1]
Contribution margin ratio
16%
E
Fixed Cost
$ 3,21,000.00
F=E/D [Answer 2]
Sales Revenue needed to Break EVen
$ 20,06,250.00
A
Fixed Cost
$ 3,21,000.00
B
Target Profit
$ 1,00,000.00
C=A+B
Total contribution required for target profit
$ 4,21,000.00
D [calculated above]
Contribution margin per unit
$ 14.40
E=C/D
No. of hours required
29236.11111
F
Revenue per hour
$ 90.00
E=E x F [Answer 3]
Revenue required for target profit
$ 26,31,250.00
A
Fixed Cost
$ 3,21,000.00
B
Target Profit
$ 1,10,000.00
C=A+B
Total contribution required for target profit
$ 4,31,000.00
D [calculated above]
Contribution margin per unit
$ 14.40
E=C/D
No. of hours required
29930.55556
F
Revenue per hour
$ 90.00
E=E x F [Answer 4]
Revenue required for target profit
$ 26,93,750.00
Revenue required under Answer 4 is GREATER than whats required in Answer 3 because the requirement for Target Profits have increased from $100,000 to $110,000
A
Revenue per hour
$ 90.00
B
Variable cost per hour
$ 75.60
C=A-B [Answer 1]
Contribution margin per unit
$ 14.40
D=C/A [Answer 1]
Contribution margin ratio
16%
E
Fixed Cost
$ 3,21,000.00
F=E/D [Answer 2]
Sales Revenue needed to Break EVen
$ 20,06,250.00
A
Fixed Cost
$ 3,21,000.00
B
Target Profit
$ 1,00,000.00
C=A+B
Total contribution required for target profit
$ 4,21,000.00
D [calculated above]
Contribution margin per unit
$ 14.40
E=C/D
No. of hours required
29236.11111
F
Revenue per hour
$ 90.00
E=E x F [Answer 3]
Revenue required for target profit
$ 26,31,250.00
A
Fixed Cost
$ 3,21,000.00
B
Target Profit
$ 1,10,000.00
C=A+B
Total contribution required for target profit
$ 4,31,000.00
D [calculated above]
Contribution margin per unit
$ 14.40
E=C/D
No. of hours required
29930.55556
F
Revenue per hour
$ 90.00
E=E x F [Answer 4]
Revenue required for target profit
$ 26,93,750.00