FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Dr. MaGoo performs laser surgery to correct eye vision. He charges $800 for eye surgery (for a pair of eyes):
Variable cost per eye surgery (per pair of eyes) are:
| Medical Supplies | $35.00 | ||||
| Nurses time | 65.00 | ||||
| Utilities for the machine | 10.50 | ||||
| Variable marketing and administrative costs | 24.50 | ||||
| The income tax rate is | 30% |
Fixed
a. What is the contribution margin per eye surgery?
b. Suppose that Dr. MaGoo wants to make a profit (after tax) of $100,000, how many eye surgeries must be sold? (Round to nearest dollar for tax calculation)
c. Suppose that Dr. MaGoo has another option available, which uses a scalpel (cut and sew option) rather than the laser (laser option). This option reduces the fixed costs by $49,950 per year and increases variable cost by $150 per surgery. Assume 333 is the number of eyes surgeries where MaGoo is indifferent between the two options. If MaGoo expects to perform less eye surgeries than 333 (but more than the breakeven), which option would McGoo prefer? WHY? (NOTE: at 333 MaGoo is indifferent because both options have the same profit.)
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