Southwest Hospital has the operating room utilized only for eye surgery. Annual cost of rent, heat, and electricity for operating room and its equipment is $250,000 and annual salaries for people who staff room total $420,000. Every surgery carried out needs use of $675 worth of medical supplies and drugs. To foster goodwill, each patient gets a bouquet of flowers day after surgery and the pair of dark glasses, which hospital gives free of charge. It costs hospital $25 for every bouquet of flowers and $15 for every pair 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 every year to break even?
3) Southwest Hospital presently averages 72 eye operations per month. One of nurses has now learned about 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, suggest hospital on whether it must lease this machine.
4) The advertising agency has suggest to hospital's president that she spent $15,000 per month on television and radio advertising to influence people that Southwest Hospital is best place to have eye surgery performed. Advertising account executives find that such publicity would rise business by 38 operations per month. If they are right and if this increase is not large enough to influence fixed costs, what impact would advertising have on hospital's income?
5) In case advertising agency is being overly optimistic, how many additional operations per month are required to cover cost of the proposed ads?
6) If campaign is accepted and subsequently fulfill its projections, must hospital review its decision about machine discussed in Question 3?