Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 26

CVP Analysis General Hospital's Cardiac Diagnostic Screening Center (CDSC) is contemplating purchasing a blood gases analysis machine at a cost of $960,000. Useful life for this machine is 10 years. The screening center currently serves 3,000 patients per year, 40% of whom need blood gases analysis data as part of their diagnostic tests. The blood samples are presently sent to a private laboratory that charges $200 per sample. In-house variable expenses are estimated to be $125 per sample if CDSC purchases the analysis machine.
Required
1. Determine the indifference point between purchasing the machine or using the private laboratory.
2. Use the Goal Seek function in Excel to determine the indifference point calculated in requirement 1.
3. Determine how many additional patients would be needed so that CDSC would be indifferent between purchasing the analysis machine and the $200 lab charge.
4. Assuming the current service level of 3,000 patients per year, how much would the private laboratory have to charge per sample to make CDSC indifferent between purchasing the analysis machine and using the private laboratory's services
5. What other considerations are relevant to this decision