Expand - or - reduce decision. Janet Gilbert is director of labs. She has some e

Question

Expand - or - reduce decision. Janet Gilbert is director of labs. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her costs for these contracts are $50,000, of which $7,000 is the variable cost of supplies. The rest is nonavoidable fixed cost. She currently charges an average of $20 per test. She is thinking of lowering her price by 20 percent in hopes of raising her current volume of 10,000 tests by 15 percent. If she does so, she expects her variable cost per test will go up by 4 percent.

Explanation / Answer

It shows reduction decsion. There are many alterations in teh business due to variable cost per test deflections.

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