Office Visits Phone Calls Weight-Loss Support Group Maximum number of patient bi

Question

Office Visits Phone Calls Weight-Loss Support Group
Maximum number
of patient billings per day 20 40 50
Hours per billing 25 .10 1.0
Billing rate $50 $25 $10
Variable costs $25 $12 $5


Sales Mix Decision
Dr. Massy, who specializes in internal medicine, wants to analyze his sales mix to find out how the time of his physician assistant, Consuela Ortiz, can be used to generate the highest operating income.
Ortiz sees patients in Dr. Massy's office, consults with patients over the telephone, and conducts one daily weight-loss support group attended by up to 50 patients. Statistics for the three services are as follows:

Ortiz works seven hours a day.

1. Determine the best sales mix. Rank the services offered in order of their profitability.
2. Based on the ranking in I, how much time should Ortiz spend on each service in a day? (Hint: Remember to consider the maximum number of patient billings per day.) What would be the daily total contribution margin generated by Ortiz?

Thank you... I'm completely lost. :/

Explanation / Answer

1. contribution margin per hour: office visits: (50-25)/.25 = $100 per hour phone calls: (25 - 12)/.1 = $130 per hour group: (10 - 5)/1 = $5 per hour*50 = $250 per hour ranking: group, phone call, office visit 2. One group for 1 hour 40 phone calls for 4 hours the rest of the time spent on visits, 2 hours daily CM: group: $250 calls: 4*$130 = $520 visits: 2*100 = $200 total $970

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