ACCT 221 help A Guide to career/Snaptutorial ACCT 221 help A Guide to career/Snaptutorial | Page 8

Jacob Davis recently graduated from medical school. He is
considering opening his own family practice doctor office. A doctor’s
office is a high-fixed cost business, as it requires considerable
expenditures for facilities, labor, and equipment, no matter how many
families are served. Assume the annual fixed cost of operations is
$400,000. Further assume that the only significant variable cost
relates to patients served. An average patient served costs $250.
Jacob’s banker has asked a variety of questions in contemplation of
providing a loan for this business.
Requirements:
If the average family is charged $475 for services, how many families
must be served to clear the break-even point?
If the banker believes Jacob will only serve 1,000 families during the
first year in business, how much will the business lose during its first
year of operation?
If Jacob believes his profits will be at least $100,000 during the first
year, how much is he anticipating for total revenue?
The banker has suggested that Jacob can reduce his fixed costs by
$100,000 if he will not purchase certain equipment. Jacob can instead
lease or rent this equipment as needed. The variable cost of leasing
this equipment is $55 per family served. Will this suggestion help
Jacob reach the break-even point sooner?
Question 2
Carpet Clean manufactures a chemical cleaner. The company was
formed during the current year. As a result, there was no beginning
inventory. Management is evaluating performance and inventory
management issues, and desires to know both net income and ending
inventory under generally accepted accounting principles (absorption
costing) as well as variable costing methods. Relevant facts are as
follows:
Selling price per gallon $11.00
Variable manufacturing cost per gallon $2.00
Variable SG&A costs per gallon
$2.25
Fixed manufacturing costs $2,900,000
Fixed SG&A
$470,000
Total gallons produced 1,625,000