Manuela Gomez is the director of a nongovernment organization (NGO) that operates eye clinics in developing nations. The NGO contracts with leading eye surgeons in Europe and the United States (usually, physicians donate their services) to set up clinics for diagnosing and treating diseases such as macular degeneration. Manuela's problem concerns clinic location: whether to operate fewer large clinics in a central town or many smaller clinics in outlying areas.

Manuela informs you that it costs $5,000 to set up a clinic in a major town. Equipped like a mini hospital, such a clinic facilitates advanced treatments. This clinic usually is in place for two weeks and can treat 1,000 patients during this period. About 50 of these cases require advanced treatment. The clinics attract many people from nearby areas. However, it is also true that some patients must travel many miles (some came from as far as 200 miles away), enduring difficult traffic conditions. Most patients consume supplies worth $3; however, each patient with an advanced condition consumes supplies worth $250.

The alternative is to use the time to set up three smaller clinics (three to four days each) in outlying areas. Each of the smaller clinics costs $2,500 to set up. Travel adds another $1,500 or so to the costs per clinic. The smaller clinics cannot deal with advanced cases but can reach people who otherwise could not get treatment. Usually, each small clinic handles about 250 patients, although the physicians must turn away patients with advanced conditions. Variable costs for each patient amounted to $3.

For this year, Manuela's NGO offered three large trips and seven small trips.

Required:

1. The sponsoring agency has requested that Manuela's NGO become more cost efficient in delivering its services. Recent media articles about excessive spending by NGO and lack of controls prompted a clamp-down on costs. Calculate the current year's cost per patient.
2. Help Manuela calculate a budget for the forthcoming year. She expects to offer eleven trips with small clinics and two trips with large clinics during the year. Use the cost per patient (computed for part A) to estimate total costs for the year. Do you trust this estimate?
3. Develop a refined budget for the forthcoming year. What is the cost per patient under this refined estimate?
4. What justifications would you offer to the funding agency for why it should fund the higher cost per patient, even though the total number of patients is not expected to change.