CASE STUDY

MEDI-EXAM HEALTH SERVICES, INC.

SUBMITTED BY:
Cruz, Esmeralda N.
GLORIANI, Michelle G.
RABINO, Cristobal N.

ANSWERS
Compute the monthly break-even volume for Medi-Exam Health Services.
Break-even volume
= Fixed Cost Unit Contribution Margin
Fixed Costs
= Fixed Lab. Overhead + Fixed Admin
= $20,000+4,000 = $24,000.00
Unit Contribution Margin

NOTE:
Supplies
Labor
Variable Lab. OH
Variable Admin
TOTAL
Break-even volume

=
=
=
=

Sales revenue / Unit Variable Cost / Unit

$160 ($32,000* / 500)
$160 - $64
$96

$8,000
$6,000
$10,000
$ 8,000
$32,000
= $24,000.00 $96
= 250 exams

Compute the exact profit indicated by the profit-graph for a volume of 31

examinations.
Answer: Profit per Profit graph
Total Pretax Profit = Revenue - Variable Cost - Fixed costs
Total pretax profit for X exams = $160X -$64X - $24,000
Total Pretax Profit for 310 exams = $160 (310) - $64(310) - $24,000
= $49,600 - $19,840 - $24,000
= $5,760
Determine the number of examinations performed (as opposed to billed) in
August.
August Production Volume
Fixed laboratory overhead is absorbed at the rate of $40.00 per physical
administered:
Fixed Laboratory overhead
Normal months number of examination

= $20,000
500

= $40.00

There is a volume variance (debit) of $1,600 for the period, indicating that overhead
has been under absorbed (number of examinations given was less than formal).

Fixed laboratory overhead absorbed by examinations given must total $20,000 $1,000 = $18,400. If $18,400 was absorbed and the absorption rate is $40/physical,
then 460 examinations must have been given this period.
Alternatively, if the approach described in the chapters first appendix is used, the
production volume variance is $1,600U, and the absorption rate for overhead is
$40/exam; so $1,600 / $40 = 40 fewer exams than normal (460 = 500-40) must
have been performed.
Reconcile the profit just computed with the August book profit of $10,000.

*460 examination were performed but only 310 were billed. Therefore 150
examinations were still unbilled (an intangible WIP inventory). Each of these is
allocated $40 of laboratory overhead ($40 X 150 = $6,000)
+$160 x 310 examinations = $49,600. Actual revenue was $49,200.
**Expected Administrative expenses were $4,000 fixed + $8,000 / 500 variable
or $4,000+$16 per exam. For 310 examinations, planned costs are $4,000 + ($16
x 310) = $8,960.
Actual costs were $9,200.