Panhandle Regional Medical Center Activity Cost Detail Cost Activity Cost Driver Volume per Unit Appointment scheduling Receptionist time 3 minutes $ 0.20 Patient check-in Receptionist time 5 minutes 0.20 Ultrasound testing Technician time 45 minutes 0.40 Physician time 1.5 minutes 3.00 Supplies per procedure 1 packet 9.00 Patient check-out Receptionist time 5 minutes 0.20 Film processing Technician time 10 minutes 0.40 Film reading Contract terms per procedure 40.00 Billing and collection Overhead costs per procedure 6.80 General administration Overhead costs per procedure 1.25 Transportation/setup* Technician time 6 minutes 1.00 *Alternative II only. Notes: 1. Physician time for testing (15 minutes) is needed for one of every ten patients. 2. Supplies consist of linen, probe cover, gel, film, and print paper. 3. There are no radiologists in the Practice. Films will be read by the Hospital's radiologists at a contract fee of $40 per procedure. 4. Billing and collection costs are based on an average cost per medical services bill. 5. General administration costs are based on an estimate of facilities and other administrative costs. 6. Transportation and setup is based on ten procedures per day at each location and includes vehicle operating costs, excluding maintenance.

1. Estimate the base case cost of each alternative regarding the provision of ultrasound services. (For now, ignore the discount if three units are purchased.)

2. Which alternative has the lower total cost?

3. What value for travel and set-up costs would make the costs of the two alternatives the same?

4. Now consider the 5 percent discount. What impact does this have on the decision? What discount amount would make the two alternatives equal in costs?

5. What subjective factors would influence the decision as to which alternative to choose?

6. What is your final decision?