Make or Buy Rashad Rahavy, M.D., is a general practitioner whose offices are loc

Question

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 $12,000. If Dr. Rahavy accepts this offer, he will no longer need the bookkeeper. The bookkeeper's wages and fringe benefits amount to $15 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 three patients per hour at an average fee of $30 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. (a) Calculate the net benefit (cost) of outsourcing the bookkeeping.

Explanation / Answer

Case-1 - Not Accepting North Falls Physicians Service Center Offer. (Running the office with Booker keeper) Particulars Amount in $ Book Keeper's wages and Fringe benefits per hour $15 No of Hours worked per week 10 hours No of weeks working per year 50 weeks Total no of hours worked per year 500 hours Total wages paid to book keeper per year 7500 (500 hours * 15) Add: Record storage facility cost 1200 Add: Additional Hours Charges (2 hours per week * 50 weeks * 15 per hour) 1500 Total Annual Cost in this Situation 10200 Case-2 - Accepting North Falls Physicians Service Center Offer. Annual Fees 12000 Net Benefit (cost) if not accpting the offer 1800 Note: If Dr.Rahavy expanding his office hours then bookeeper needs                work more working hours per week at the time                If book keeper cost is more than the North fall offer price then               Dr.Rahavy can accept the offer.

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