Assume that Painless Dental Clinics, Inc., offers three basicdental services. Here are its prices and costs:
| Price
per Unit | Variable Cost
per Unit | UnitsSold
per Year |
| Cleaning | $ | 140 | | $ | 90 | | 8,000 |
| Filling | | 420 | | | 400 | | 1,700 |
| Capping | | 1,225 | | | 530 | | 300 |
|
Variable costs include the labor costs of the dental hygienistsand dentists. Fixed costs of $410,000 per year include building andequipment costs, marketing costs, and the costs of administration.Painless Dental Clinics is subject to a 20 percent tax rate onincome.
A cleaning “unit” is a routine teeth cleaning that takes about45 minutes. A filling “unit” is the work done to fill one or morecavities in one session. A capping “unit” is the work done to put acrown on one tooth. If more than one tooth is crowned in a session,then the clinic counts one unit per tooth (e.g., putting crowns ontwo teeth counts as two units).
Required:
a. How much will Painless Dental Clinics, Inc.,earn each year after taxes?
b. Assuming the above sales mix is the same atthe break-even point, at what sales revenue does Painless DentalClinics, Inc., break even? (Do not round intermediatecalculations. Round your final answer up to the nearest wholeunit.)
c. Assuming the above sales mix, at what salesrevenue will the company earn $142,000 per year after taxes?(Do not round intermediate calculations.)
d-1. Painless Dental Clinics, Inc., isconsidering becoming more specialized in cleanings and fillings.Assume the number of cleanings increased to 11,000 per year, thenumber of fillings increased to 1,800 per year, while the number ofcappings dropped to zero? With this change in product mix, thecompany would increase its fixed costs to $460,000 per year. Whatwould be the effect of this change in product mix on the clinic’searnings after taxes per year?
d-2. If the clinic's managers seek to maximizethe clinic's after-tax earnings, would this change be a goodidea?
