Week 6: Connection to the Real World (Expand or Reduce Decision)

Week 6: Connection to the Real World (Expand or Reduce Decision)

Krissy McLain is a physician with her own practice. She has developed contracts with several large employers to perform routine exams, fitness‐for‐duty exams, and initial screening of on‐the‐job injuries. She provides 300 exams per month, charging $300 per exam. Under these contracts, she estimates her avoidable fixed cost attributable to the exams is $2,000 per month, and she pays a lab an average of $25 per exam. She has decided she needs to increase profit, so she is considering raising her fee to $325, even though there may be a 10 percent loss in the number of exams she does per month.

Determine the current and predicted

(a) revenues,

(b) variable costs, and

(c) total contribution margin.

What should she be recommended to do? Why?

Week 6: Connection to the Real World (Expand or Reduce Decision)

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