1. a. What is scenario analysis as applied to pricing and service decisions?
b. Why is it such an important part of the process?
2. Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are relevant data estimates:.
Variable cost per visit $5.00
Annual direct fixed costs $500,000
Annual overhead allocation $50,000
Expected annual utilization 10,000 visits
a. What per visit price must be set for the service to break even? To earn an annual profit of $100,000?
b. Repeat Part a, but assume that the variable cost per visit is $10.
c. Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000.
d. Repeat Part a assuming both a $10 variable cost and $1,000,000 in direct fixed costs.