(Appendix 2) Home Medical Services is a firm that has been experiencing finan¬ cial difficulties. Its founder, Dr. Stephen Ross, has been studying the possibility of instituting a standard cost system. The firm’s product is a basic physical ex¬ amination that is administered in the client’s home. Dr. Ross is aware that more experienced examiners (all employees are registered nurses) can conduct the basic exam in significantly less time than the firm’s new hires. New hires typically require 60 minutes to complete their first exam. Dr. Ross is also aware of the learning curve concept, but has no idea of how it affects his business or its profitability. He has recently experienced significant employee turnover. Most of the employees who have quit have been with Dr. Ross for more than 2 years. He pays all employees a basic hourly wage of $25 plus fringe benefits.

a. Assume that the administration of the health care examination is character¬ ized by a 70 percent learning curve. Determine the average time required per exam to conduct 32 exams.

b. Alternatively, assume that the administration of a health care examination is characterized by a 90 percent learning curve. Determine the average time required per exam to conduct 32 exams.

c. Is it possible that Dr. Ross’s employee turnover is related to the learning curve? Explain. Would the 70 percent or the 90 percent learning curve better explain the pattern in employee turnover? Why?