Assume that Limitless Labs, Inc., offers three basic drug-testing services for professional athletes. Here are its prices...

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Assume that Limitless Labs, Inc., offers three basicdrug-testing services for professional athletes. Here are itsprices and costs: Price per Unit Variable Cost per Unit Units Soldper Year Basic $ 660 $ 200 700 Retest 1,000 540 250 Vital 4,4803,040 50 Variable costs include the labor costs of the medicaltechnicians at the lab. Fixed costs of $470,000 per year includebuilding and equipment costs and the costs of administration. Abasic "unit" is a routine drug test administered. A retest is givenif there is concern about the results of the first test,particularly if the test indicates that the athlete has taken drugsthat are on the banned drug list. Retests are not done by thelaboratory that performed the basic test. A "vital" test is thelaboratory's code for a high-profile case. This might be a test ofa famous athlete and/or a test that might be challenged in court.The laboratory does extra work and uses expensive experttechnicians to ensure the accuracy of vital drug tests. LimitlessLabs is subject to a 30 percent tax rate. Required: (a) How muchwill Limitless Labs earn each year after taxes? (b) Assuming theabove sales mix is the same at the break-even point, at what salesrevenue does Limitless Labs break even? (Do not round yourintermediate calculation.) (c) At what sales revenue will thecompany earn $196,000 per year after taxes assuming the above salesmix? (Do not round your intermediate calculation.) (d-1) LimitlessLabs is considering becoming more specialized in retests and vitalcases. What would be the company's break-even revenues per year ifthe number of retests increased to 550 per year and the number ofvital tests increased to 200 per year, while the number of basictests dropped to 100 per year? With this change in product mix, thecompany would increase fixed costs to $500,000 per year. What wouldbe the effect of this change in product mix on Limitless Labs'searnings after taxes per year? (d-2) If the laboratory's managersseek to maximize the company's after-tax earnings, would thischange be a good idea? Yes No rev: 06_25_2014_QC_50760,08_01_2014_QC_50760

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4.2 Ratings (629 Votes)

a Basic Retest Vital Total Revenue 700660 2501000 504480 93600000 less Variable costs 700200 250540 503040 42700000 Contribution margin 50900000 less Fixed costs 47000000 Profit before tax 3900000 less Tax 30 1170000 Profit 2730000 Thus profit See Answer

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Assume that Limitless Labs, Inc., offers three basicdrug-testing services for professional athletes. Here are itsprices and costs: Price per Unit Variable Cost per Unit Units Soldper Year Basic $ 660 $ 200 700 Retest 1,000 540 250 Vital 4,4803,040 50 Variable costs include the labor costs of the medicaltechnicians at the lab. Fixed costs of $470,000 per year includebuilding and equipment costs and the costs of administration. Abasic "unit" is a routine drug test administered. A retest is givenif there is concern about the results of the first test,particularly if the test indicates that the athlete has taken drugsthat are on the banned drug list. Retests are not done by thelaboratory that performed the basic test. A "vital" test is thelaboratory's code for a high-profile case. This might be a test ofa famous athlete and/or a test that might be challenged in court.The laboratory does extra work and uses expensive experttechnicians to ensure the accuracy of vital drug tests. LimitlessLabs is subject to a 30 percent tax rate. Required: (a) How muchwill Limitless Labs earn each year after taxes? (b) Assuming theabove sales mix is the same at the break-even point, at what salesrevenue does Limitless Labs break even? (Do not round yourintermediate calculation.) (c) At what sales revenue will thecompany earn $196,000 per year after taxes assuming the above salesmix? (Do not round your intermediate calculation.) (d-1) LimitlessLabs is considering becoming more specialized in retests and vitalcases. What would be the company's break-even revenues per year ifthe number of retests increased to 550 per year and the number ofvital tests increased to 200 per year, while the number of basictests dropped to 100 per year? With this change in product mix, thecompany would increase fixed costs to $500,000 per year. What wouldbe the effect of this change in product mix on Limitless Labs'searnings after taxes per year? (d-2) If the laboratory's managersseek to maximize the company's after-tax earnings, would thischange be a good idea? Yes No rev: 06_25_2014_QC_50760,08_01_2014_QC_50760