Make or Buy
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
$7,000. If Dr. Rahavy accepts this offer, he will no longer need
the bookkeeper. The bookkeeper's wages and fringe benefits amount
to $13 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 four patients per hour at an average fee of $35
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.
Conduct a relevant cost analysis to determine if it is
profitable to outsource the bookkeeping.
Calculate the net advantage (disadvantage) of outsourcing the
bookkeeping.
Use a negative sign with your answer to indicate a net
disadvantage, if applicable.
$Answer
Yes, it is profitable to outsource bookeeping:
| Particulars | Amount | Workings |
| Savings of wages and fringe benefits to bookkeeper / year | $ 6,500 | =10hours*50weeks*$13 |
| Savings from rents of record storage facility/ year | $ 1,200 | =$100*12months |
| Earning from seeing 4 patients per hr. for 2 hrs. in 50 weeks | $ 14,000 | =4patients*2hours*50week*$35 |
| Total Benefits | $ 21,700 | |
| Less Total Cost | $ 7,000 | |
| Net Benefit of Outsourcing | $ 14,700 |
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