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6 1 Homework
6 1 Homework
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.