(CVP Analysis) Clinical Services imports and sells surgical instrument kits to hospitals at a price of $150 per kit. The cost of each kit is $85. Average sales per month are 1,000 kits, which results in the following profit:
|
Sales 1,000 @ $150 |
$150,000 |
|
Cost of goods sold 1,000 @ $85 |
85,000 |
|
Gross profit |
65,000 |
|
Fixed costs |
50,000 |
|
Net profit |
$15,000 |
The national Hospital Purchasing Authority is negotiating with Clinical Services to reduce its selling price by 20%, promising to buy at least 1,200 kits per month. Should Clinical Services accept this offer? If so, why? If not, what would be your suggestion in order for Clinical Services to maintain its current level of profitability?