Rashad Rahavy, M.D., is a general practitioner whose offices are located in the
ID: 2422356 • Letter: R
Question
Rashad Rahavy, M.D., is a general practitioner whose offices are located in the South Falls Professional Building. In the past, Dr. Rahavy has operated his practice with a nurse, a receptionist/secretary, and a part-time bookkeeper. Dr. Rahavy, like many small-town physicians, has billed his patients and their insurance companies from his own office. The part-time bookkeeper, who works 10 hours per week, is employed exclusively for this purpose.
North Falls Physician's Service Center has offered to take over all of Dr. Rahavy's billings and collections for an annual fee of $12,000. If Dr. Rahavy accepts this offer, he will no longer need the bookkeeper. The bookkeeper's wages and fringe benefits amount to $15 per hour, and the bookkeeper works 50 weeks per year. With all the billings and collections done elsewhere, Dr. Rahavy will have two additional hours available per week to see patients. He sees an average of three patients per hour at an average fee of $30 per visit. Dr. Rahavy's practice is expanding, and new patients often have to wait several weeks for an appointment. He has resisted expanding his office hours or working more than 50 weeks per year. Finally, if Dr. Rahavy signs on with the center, he will no longer need to rent a records storage facility for $100 per month.
(a) Calculate the net benefit (cost) of outsourcing the bookkeeping.
Explanation / Answer
Working notes
Salary of bookkeeper = 10*15*50 = 7500 yearly
Addittiona hours free by doctor in a 50 week= 50* 2 = 100 hours per week
He sees three patients hence total 100*3 = 300 patients will be seen
total earned = 300* 30 = $9000
Net benefit of outsourcing
Annual fee (12,000)
Savings on book keeper 7,500
Addittional earned 9,000
Rent save 100*12 1,200
Net benefit $5,700
Working notes
Salary of bookkeeper = 10*15*50 = 7500 yearly
Addittiona hours free by doctor in a 50 week= 50* 2 = 100 hours per week
He sees three patients hence total 100*3 = 300 patients will be seen
total earned = 300* 30 = $9000
Net benefit of outsourcing
Annual fee (12,000)
Savings on book keeper 7,500
Addittional earned 9,000
Rent save 100*12 1,200
Net benefit $5,700
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