Sales Mix Decision
Dr. Stott, who specializes in internal medicine, wants to analyze his sales mix to find out how the time of his physician assistant, Connie Mortiz, can be used to generate the highest operating income.
Mortiz sees patients in Dr. Stott’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 |
Mortiz 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 1, how much time should Mortiz 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 Mortiz?
3. Dr. Stott believes the ranking is incorrect. He knows that the daily 60-minute meeting of the weight-loss support 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 visits, how much time should Mortiz spend on each service in a day? What would be the total contribution margin generated by Mortiz, assuming the weight-loss support group has the maximum number of patient billings?
4. Manager Insight: Which ranking would you recommend? What additional amount of total contribution margin would be generated if your recommendation is accepted?
Show transcribed image text 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. Massys 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: Weight-Loss Support Office Visits Phone Calls Group Maximum number 20 40 of patient billings per day 1.0 Hours per billing 10 .25 S25 S10 $50 Billing rate $5 Variable costs $25 $12 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 believes the ranking is incorrect. He knows that the daily 60-minute meeting of the weight- loss support 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 visits, 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? 4. Manager Insight: Which ranking would you recommend? What additional amount of total contribution margin would be generated if your recommendation is accepted?
