Overview
The assignment was completed previously; however, it did not fully meet the required criteria.
Attached are the assignment file and the instructor’s feedback/comments. Kindly review and revise it as soon as possible.
The assignment requires answering Question 1, Question 2, and Question 4 only, so the selected questions are correct. However, the solution needs major revisions in the calculations and presentation.
Required corrections:
1. Question 1 – Cost Classification
- The cost classification needs to be clearer and more accurate.
- Costs should be separated into:
- Fixed costs
- Variable costs
- Lab service costs
- Scan service costs
- The 40% payment to Manna Healthcare should be treated as a variable cost, because it depends on revenue.
- The ultrasonographer commission should be calculated as 6% of scan revenue. For 180 scan patients:
- Scan revenue = 180 × $9 = $1,620
- Commission = 6% × $1,620 = $97.20
- The current answer uses $194.40, which appears to double-count the commission.
- Depreciation is included more than once. The depreciation amounts should be calculated once only.
- Items such as furniture, computer/printer, lab equipment, and scan equipment depreciation should not be repeated under another “depreciating costs” section.
- Tissues are missing from the fixed consumables and should be included.
- Shared costs such as A4 paper, envelopes, gloves, toner, tissues, furniture, and computer/printer should be allocated clearly and consistently.
- The operating income figures should be recalculated after fixing the above errors.
2. Question 2 – Break-even for Scan Services Only
- The break-even calculation is incorrect.
- The formula should be:
- Break-even units = Fixed Costs ÷ Contribution Margin per Unit
- Break-even sales = Break-even units × Selling Price
- The contribution margin per scan should be calculated after including all variable costs:
- Selling price per scan = $9
- Manna Healthcare share = 40% × $9 = $3.60
- Gel = $1.25
- Thermal print paper = $2.50
- Ultrasonographer commission = 6% × $9 = $0.54
- Total variable cost per scan = $7.89
- Contribution margin per scan = $9 − $7.89 = $1.11
- The answer currently states that the break-even point is around 99 or 100 patients, but this does not match the correct contribution margin calculation.
- The fixed costs also need to be recalculated after removing duplicated depreciation.
3. Question 2 – Break-even for Lab Services Only
- The lab services section has inconsistent variable cost numbers.
- In one table, variable costs are shown as $892.20, but later they are shown as $352.20. This needs to be corrected.
- The 40% Manna Healthcare share must be included as a variable cost for lab services.
- The CEO/lab technician salary appears to be double-counted in the fixed cost section. Please remove any duplicated salary items.
- The break-even units and sales for lab services should be recalculated using the correct fixed costs and contribution margin per unit.
- Also, the statement “$11.25 per scan” is incorrect in the lab section. It should say $11.25 per lab service, not per scan.
4. Question 4 – Multiproduct Break-even
- This section needs to be recalculated.
- The current break-even result of 161 patients appears to be too low because the calculation seems to exclude the 40% Manna Healthcare share from variable costs.
- The correct sales mix should be:
- Scan services: 60%
- Lab services: 40%
- The weighted-average contribution margin should be calculated using the correct contribution margin per unit for both services.
- The break-even should then be calculated as:
- Break-even total patients = Total Fixed Costs ÷ Weighted-Average Contribution Margin
- After that, the total patients should be split based on the sales mix:
- 60% scan patients
- 40% lab patients
- The break-even revenue should also be recalculated.
- Please avoid saying “recoup the initial investment” in Question 4 because this question is about monthly break-even, not recovering the original investment.
5. Wording and Presentation Issues
- Replace “administration” with “services” or “patients” where appropriate.
- Replace “filter administration” with “scan services.”
- Use consistent terminology throughout:
- Lab services
- Scan services
- Patients
- Break-even units
- Break-even sales
- Make sure all tables have clear headings and that the calculation steps are shown clearly.
- The final answer should include a short explanation of what each result implies, especially in Question 2 and Question 4.
Overall, the structure is acceptable, but the calculations need to be corrected before submission. The most important parts to fix are Question 2 and Question 4, because the current break-even results are not reliable.