Question
Assume Beverly Clinic has an optical services department. The department provides three services - basic eye exams, advanced eye exams and vision therapy services. Following
Assume Beverly Clinic has an optical services department. The department provides three services - basic eye exams, advanced eye exams and vision therapy services. Following is relevant information for those services:
Service | Variable Cost (VC) Per Service | Annual Direct Fixed Costs (DFC) | Annual Visits |
Basic exam | $18 | $78,000 | 6,000 |
Advanced exam | $24 | $72,000 | 4,000 |
Therapy session | $30 | $40,000 | 10,000 |
a) What price should Beverly Clinic charge for each of the three services, assuming that its goal is to cover only variable and direct fixed costs?
b) Assume that the clinic allocates $80,000 of overhead costs to the optical services department. What price should Beverly Clinic charge for each of the three services, assuming the overhead costs must also be covered (assume that the allocation of the $80,000 of overhead costs is made based on the number of annual visits)?
c) Assume that these services must make a combined profit of $120,000. What price should Beverly charge for each of the three services (assume that the profit requirement is allocated based on the number of annual visits. Include the overhead costs from part b in determining the price).
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