Sales Mix Decision Dr. Massy, who specializes in internal medicine, wants to ana

Question

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:

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

Ortiz works seven hours a day.

Required

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?

3. dr. massy knows that the daily 60-minute meeting of the weight loss group has 50 patients and should continue to be offered. If the new ranking for the services is 1. Weight-loss support group, 2. Phone calls, and 3. Office vists,how much time should Ortiz spend on each service in a day? What would be the total contribution margin generated by Ortiz, assuming the weight-loss support group has the maximum number of patient billings?

I really need help.

Thank you for your consideration!!!

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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