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Smith & Smith Medical Clinic provides annual health check-up packages for all ages. The clinic...

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Accounting

Smith & Smith Medical Clinic provides annual health check-up packages for all ages. The clinic charges $14,000 per package on average. The average variable costs per package are $10,500. The annual fixed cost is $980,000.

The following is the estimated income statement of Smith & Smith for 2018:

$

Sales (300 packages)

4,200,000

Variable costs

3,150,000

Contribution margin

1,050,000

Fixed costs

980,000

Net profit

70,000

Required

1. Calculate the break-even point (in number of packages and in dollars of sales)

2. Smith & Smith wished to increase the net profit by 150%. What is the number of package needed to be sold to achieve this target?

3. The clinic is considering spending additional $1,000,000 in advertising programmes to promote the companys health checkup products and it is expected that, with these programmes, sales volume can be doubled in 2018 with no change in selling price. Can Smith & Smith achieve the target of increased profit in (b) above if the clinic goes for the advertising cost?

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