Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 35

Break-Even Sales: Sales for Target Profit
Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinics throughout the metropolitan area. Health-Temp Company believes it will place temporary nurses for a total of 23,500 hours next year. Health-Temp charges the hospitals and clinics $90 per hour and has variable costs of $75.60 per hour (this includes the payment to the nurse). Total fixed costs equal $321,000.
Required:
1. Calculate the contribution margin per unit and the contribution margin ratio.
2. Calculate the sales revenue needed to break even.
3. Calculate the sales revenue needed to achieve a target profit of $100,000.
4. What if Health-Temp had target operating income (profit) of $110,000? Would sales revenue be larger or smaller than the one calculated in Requirement 3? Why? By how much?