Question: southwest hospital has an operating room used only for eye...
Southwest Hospital has an operating room used only for eye surgery. The annual cost of rent, heat, and electricity for the operating room and its equipment is $360,000. The annual salaries of the people who staff this room total $540,000.
Each surgery performed requires the use of $760 worth of medical supplies and drugs. To promote goodwill, every patient receives a bouquet of flowers the day after surgery. In addition, one-quarter of the patients require dark glasses, which the hospital provides free of charge. It costs the hospital $30 for each bouquet and $40 for each pair of glasses.
The hospital receives a payment of $2,000 for each eye operation performed. The hospital currently averages 70 eye operations per month.
One of the nurses informed the board that she has recently learned about a machine that would reduce the per-patient amount of medical supplies needed for each operation by $100. The machine can be leased annually for $100,000.
An advertising agency has proposed to the hospital board that the board should spend $20,000 per month on television and radio advertising to persuade people that Southwest Hospital is the best place to have any eye surgery performed. Advertising account executives estimate that such publicity would increase business by 40 operations per month.
• Should the hospital lease the machine the nurse has brought to the attention of the board? Provide a detailed accounting of the calculations you use for your recommendation for the board's review as well as a clear explanation of how you determined your recommendation. This recommendation should only consider the machine and not the advertising.
• If the ad campaign is approved and does meet its projections, advise the hospital on whether or not they should re-think the decision about leasing the machine. Include all calculations and explanations to justify your recommendation. Should the hospital board consider both the advertising and leasing the machine?