Hospital has the operating room used only for eye surgery. Anunual cost of rent, heat, and electricity for operating room and its equipment is $255,000 and annual salaries for people who staff this room total $450,000. every surgery performed needs use of $650 worth of medical supplies and drugs. To foster goodwill, each patient gets the bouquet of flowers day after surgery and pair of drak glasses, which hospital gives free of charge. It costs hospital $25 for each bouquet of flowers and $15 for every pai of glasses. Hospital gets payment of $2100 for each eye operation performed.
1. Find revenue per case and annual fixed and variable costs for running operating room.
2. How many eye operations should hospital perform each year to break even?
3. Hospital presently averages 70 eye operations per month. One of nurses has now learned about the machine which would decrease by $90 per patient amount of medical supplies required. It can be leased for $ 85,000 annually. Remembering financial cost and benefits, advise hospital on whether it must lease this machine.
4. Advertising agency has suggested to hospital's president that she spend $15,000 per month on television and radio advertising to persuade poeple that hospital is good place to have any eye surgery performed. Advertising account executives evaluate that publicity would increase business by 38 operations per month. If they are right and if this increase is not big sufficient to affect fixed costs, what impact would advertising have on hospital's profits?
5. In case advertising agency is being overly optimistic, how many additional operations per moth are required to cover cost of proposed ads?
6. If ads campaign is approved and subsequently fulfill its projections, should hospital review its decision about machine discussed in question 3?