Saint Francis 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 $275,000, and the annual salaries for the people who staff this room total $1,270,000. These costs are the same Page 2 of 2 regardless how many surgeries are performed. Each surgery performed requires the use of $1,375 worth of medical supplies and drugs. To promote goodwill, every patient receives a bouquet of flowers the day after surgery. In addition, all patients require dark glasses, which the hospital provides free-of-charge. It costs the hospital $55 for each bouquet of flowers and $25 for each pair of glasses. The hospital receives a payment of $3,500 for each eye operation performed. Last year the hospital performed 950 operations and plans to continue at this level of production. Identify the revenue per case (price per unit) and the annual fixed and variable costs for running the operating room. Set up your spreadsheet so that theses inputs can readily be changed. Set up an output range to calculate the break-even quantity and dollar amount for total revenue and costs. Also, set up an output range to display the projected profits resulting from different levels of production. How many eye operations must the hospital perform each year in order to break even? What would the annual profits be if they perform 950 operations each year? One of the nurses has just learned about a machine that would reduce the cost of medical supplies needed by $580 per patient. It can be leased for $475,000 annually. Keeping in mind the financial costs and benefits, advise the hospital on whether or not they should lease this machine. Use the spreadsheet to identify the break-even point and the level of profit associated with 950 operations per year. Modify the fixed and variable costs as appropriate and examine the break-even quantity and profits again. An advertising agency has proposed to the hospital's president that she spend $10,000 per month on television and radio advertising to persuade people that Saint Francis Hospital is the best place to have any eye surgery performed. The advertising firm estimates that such publicity would increase business by 30 operations per month. If they are correct, what impact would this advertising have on hospital's profit? What would happen to the break-even point? In case the advertising agency is being overly optimistic, what would the decision be if the advertising campaign only increased the number of operation per month by 5? What is the maximum amount the Hospital would be willing to pay for the advertising if the ads generated 30 additional operations each month? Consider this option independent of the machine purchase described above. Assuming the hospital decided to use the advertising program, should the hospital then also purchase the machine? What impact do these decisions have on profits and risk for the hospital? Prepare a written report summarizing your results and recommendations. Include an explanation of the effects of changing the price, variable cost, and fixed costs on the break-even point and profits. The report should include printouts of the various spreadsheets and graphs to support your conclusions