Laurie Vaden is a physician with her own practice. She has developed contract wi

Question

Laurie Vaden is a physician with her own practice. She has developed contract with several employers to perform routine exams, fitness-for-duty exams, and initial screening of on-the-job injuries. She provides 100 exams per month, charging $100 per exam. Under this contract, she estimates her avoidable fixed costs attributable to the exams are $1,000 per month, and she pays a lab an average of $15 per exam. She has decided she needs to increase profit, so she is considering raising her fee to $125, even though there may be a 10 percent loss in the number of exams she does per month. Determine the current and predicted: variable costs, and total contribution margin. What do you recommend she do? Why?

Explanation / Answer

she should increase because she wants to maximise her profit because initially gain=10000-1000-1500=7500, now her profit=(125-15)*90-1000=8900 so she should increase her fee.

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