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While the number of groups for the national product was likely lower because the number of national products (6) was lower than planned (8), the number of regional products was much larger (12) than planned (8). Consequently, the total number of required groups increased significantly although the number of actual participants stayed at 80,000 as planned. That is, the participant-level costs of $2,400,000 were at expected levels, but the group level costs were higher ($1,800,000) than planned ($1,350,000). Notice that product level costs were also higher by a small margin of $20,000.10. 65a.The following table provides the cost estimates:Setup cost / large clinic$5,000Variable cost (regular) 2,850950 × $3Balakrishnan, Sivaramakrishnan, & Sprinkle – 2eFOR INSTRUCTOR USE ONLY10-27
Variable cost (advanced)12,50050 × $250Total cost$20,350Cost per patient$20.35$20,350/1,000 patientsThe following is the cost estimate per patient per trip that sets up small clinics.Setup cost / small clinic$7,500$2,500 / clinic × 3 clinicsTravel costs1,500Variable cost (regular) 2,250250 patients × 3 clinics × $3Variable costs (advanced)not applicableTotal cost$11,250Cost per patient$15.00The total cost last year is therefore (3 large × $20,350) + (7 small × $11,250) = $139,800Cost per patient = $139,800/[(3 × 1,000) + (7 × 3 × 250)] = $16.95(rounded) b.Total expected patients = (4 × 1,000) + (6 × 3 × 250) = 8,500 patientsCost = $16.95 × 8,500 patients = $144,075.We would argue that this estimate is flawed. A better cost estimate is:(4 large trips × $20,350/trip) + (6 small trips × $11,250/trip) = $148,900.Using the per patient cost would underestimate Manuela’s cost by nearly $5,000, a major shortfall for an NGO.c.Notice that the cost per patient with the revised estimate is $17.52(=$148,900/8,500 patients). Thus, the cost has increased by $0.50/patient, potentially indicating that theNGO is becoming inefficient. However, this conclusion would be incorrect. We couldoffer several rationales for why the revised cost is justified:We treat more advanced cases during the current year. In fact, if we do not consider advanced cases, the cost per patient has come down.We also treat more patients during the current year. Volume would have increased by 250 patients overall. (50 of these are advanced cases.)It is easier to get doctors to fly into and stay in a large city than to have them move from place to place.If we did not treat these advanced cases, the patients could go blind. We are saving 250 persons from potential blindness for $5,000. By any measure, this is a tremendously worthwhile investment. Balakrishnan, Sivaramakrishnan, & Sprinkle – 2eFOR INSTRUCTOR USE ONLY10-28
10. 66a.The cost per order is $374,400 /1,440 calls= $260 per call.Every sales call would be charged out at $260 per order, regardless of the length of the sales call or the distance traveled.b. There are several issues to consider when evaluating Bill’s argument.The first issue is whether the time spent is a better driver than the number of sales calls. The current system implicitly assumes that all sales visits consume the same amount and variety of resources. This assumption is not true. Taking the time spent on