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The maximum capacity of a health centre is 50 clients per day for 350 days in the year.
Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows.
Client fee per day Occupancy level Occupancy as a percentage of max. capacity
$180 High 90%
$200 Most likely 75%
$220 Low 60%Variable costs are estimated at one of the three levels per client day. The high, most likely and low levels per client are $95, $85 and $70 respectively.
The range of cost levels reflect only the possible effect of the purchase prices of goods and services.
No of client days:
Maximum capacity = 50*350 = 17500High occupancy level = 90% of 17500 = 15750
Most likely level = 75% of 17500 = 13125
Low level = 60% of 17500 = 10500———————————————————–Variable cost
—————————————————–95—————————–85——————70
Client fee180-(15750*180)-(15750*95)=1338750,(15750*180)-(15750*85)=1496250
200-(13125*200)-(13125*95)=1378125,(13125*200)-(13125*85)=1509375
220-(10500*220)-(10500*95)=1312500,(10500*220)-(10500*85)=1417500
why sales units stay unchanged everytime by multiplying with variable cost?Variable cost decrease but units become stable.why?
The question says that the occupancy level changes with the fee pay day. It is not affected by the variable cost.
So if the fee is $180, then the occupancy level will be 15,750 regardless of what the variable cost per day is.
Why should the cost per day affect how many people use the health centre? All that affects the demand is the price charged per day.
Dear Tutor, I thought that in any case if demand goes down then variable coast will also decrease such as if you remember in prior example(shifter haulage).I also need to pay attention and carefully read the instruction.It is not the case always.
But in reality it should have decreased.In practice ,fixed cost is not always stable as the volume of output considerably increaaw or decrease fixed will will be step-cost.In theory,it is always stable.
Variable cost per unit remain the same in the theory but in real life,as economies of scale increase(learning rate decrease) employees get experienced and the cost goes down.In the case of diseconomies of scale(learning rate is almost between 90% and 99%) the variabel cost goes up.
Most importantly it is relevant within the relevant range of volume.Theory and real life are conflicting to one another.
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