Sidney Jones

P20773811
7-18-15

6-1 Homework
Eastside Medical Testing
a. Based on Emmets assumptions ABC cost per unit is as follows:
T-1
51.2500
T-2
21.8121
T-3
19.3653
T-4
19.2153
T-5
17.7153
Profit per unit:
T-1
T-2
T-3
T-4
T-5

-16.2500
4.1879
2.6347
1.7847
2.2847

b. Should Emmet lower the price of the T1 test or keep the current and risk losing the business of
Nuclear Systems?
According to the Case study, T1 testing seems to be a niche market. The VP of operation for
Nuclear systems compared T1 testing prices with other tests offered by Eastside which is not a
good comparison. The cost that goes with this particular test is much higher and uses different
material. The text shows there was profit for the T1 testing. Using the ABC approach shows there
is actually a loss while properly allocation of all costs associated with the different tests. The total
cost of running T1 test is $51.25, while the price is 35 per test, at a -16.25% loss. This gives a
-21,035.43 annual loss. Some companies will take the loss to gain market share and hopefully
they recover in time. Emmet should keep the same price until further research on market prices
are revealed. Emmet should respond with Nuclear Systems and explain the higher cost that goes
with the T1 procedure.
c. Currently the annual total profit with Nuclear Systems included is about $703,557.48
With the loss of Nuclear Systems total profit would be reduced to $682,522,06
Annual Total Profit with 1750 tests = $683,050.03

7-1 Homework
a. What will be the effect on company profit related to accepting the Northwood
Industries job?
If Primus accepts the Northwood industries job the revenue would increase.
The text noted that Primus has the capacity to handle the Northwood job without extra manhours, so this job can be handled during usually working periods.
As noted in the text 20% of the total amount is variable costs.

Non partner hours = $8550

20% of the at nonpartner hours = $1710
Travel costs =
+$21000
$22710
Primus is charging a flat fee of $75000 -22710= $52,290 of profit form the Northwood job
addition.
One factor to consider is that the fixed costs will not change due to the additional work. Primus
has the extra capacity to handle the extra work without hiring new employees therefore there will
be no layoffs when the job is complete.
If the job completion is successful this may open up the market for Primus for more work from
Northwood and new clients.
If Primus becomes get more jobs, additional staff must be hired. The best way to handle that
would be to hire contracted labor. Of course that adds the risk of quality workmanship problems.