Expand or Reduce Decision

Robin Gordon is a physician with her own practice. She has developed contracts with several employers in Riverdale to perform routine exams, fitness-for-duty exams, and initial screening of the on-the-job injuries. She provides 250 exams per month charging $200 per exam. Under these contracts, she estimates that her avoidable fixed cost attributable to the exams is $1,000 per month, and she pays a lab an average of $15 per exam. She has decided that she needs to increase profit, so she is raising her fee to $225, even though there may be a 15 percent loss in the number of exams she does per month.

Required:

A. Determine the current and predicted revenues.

B. Determine the current and predicted variable costs.

C. Determine the current and predicted contribution margin.

D. What is the best course of action, should she raise her fees? Why or why not?