Question
The Bradley Rehabilitation Clinic (BRC) provides rehabilitation services involving several exercise machines for patients with a variety of temporary and chronic conditions. BRC is a
The Bradley Rehabilitation Clinic (BRC) provides rehabilitation services involving several exercise machines for patients with a variety of temporary and chronic conditions. BRC is a wholly owned subsidiary of McKee Hospital.
BRC is currently performing 20,000 rehabilitation sessions per year, for which it charges $100 each. The clinic contains 12 almost-new stations, each with highly sophisticated electronic machines. Depreciation on these machines totals &100,000 per year.
Fixed operating costs (other than machine depreciation) total $500,000 per year. Variable costs (such as supplies, electricity, and utilities) are $60 per training session.
McKee Hospital currently allocates $400,000 per year of its costs to BRC. RBC's accountants prepared the following loss statement and suggested that RBC be closed because it is losing money.
Fiscal Year | 2013 | 2014 | 2015 | |
Patients | 18,000 | 19,000 | 20,000 | |
Revenue | $1,800,000 | $1,900,000 | $2,000,000 | |
Less: | Supplies | 500,000 | 450,000 | 400,00 |
Utilities | 85,000 | 105,000 | 100,000 | |
Salaries and wages | 640,000 | 650,000 | 700,000 | |
Depreciation | 90,000 | 95,000 | 100,000 | |
Other operating costs | 425,000 | 475,000 | 500,000 | |
Allocated McKee Hospital Costs | 350,000 | 3750,000 | 400,000 | |
Total Costs | 2,090,000 | 2,150,000 | 2,200,000 | |
Net loss | ($290,000) | ($250,000) | ($200,000) |
Question: Use RBCs total cost equation and compute breakeven volume.
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