Question

It’s July 1 and Joanna is just out of residency, with loans that she is able to pay off at a rate of $2000 per year. She has several job offers that would pay her $1000 a week, for jobs that she would like just as much as running her own office. But she has decided to open a clinic in her rural town and is about to sign a one-year lease for office space with rent of $800 a week; once Joanna signs the lease, she is obligated to pay the rent for the full year. She is able to see 60 patient visits a week working alone, but if she hires assistants, her clinic output can be greater, according to the chart below.

Her clinic receives $18 per visit, and the salary of an assistant is $500 per week.

a) Fill in the missing values for total weekly cost and incremental cost

b) Fill in the missing values for total weekly revenue and incremental revenue

c) Is she better off hiring one assistant or two assistants?

Professional Assistants	Visits per Week	Total Cost	Total Revenue	Incremental Cost	Incremental Revenue	Revenue minus Cost
0	60
1	135		$   2,430		$1,350
2	180			$500
3	210
4	220				$ 180

Answer 1

First of all let us fill up the total cost column

1.The paying off of loan is a fixed cost that is why we dont need to consider it for decision making (concept of relevant costing).

2.Now since joanna is not taking the job which would have paid her $1000 per week this sacrifice will be the opportunity cost and hence is a part of total cost.

3.The rent of clinic is a one time expense and will not be considered for decision making.

4.The salary of the assistant will be included as per the case.

So the total cost column will be filled like this:-

Professional assistants	total cost
0	1000
1	1000+500=1500
2	1000+1000=2000
3 4	1000+1500=2500 1000+2000=3000

Now lets fill up the total rdvenue column:-

It is very simple, total revenue = no. of patients per week*18

Professional assistant	visit per week	total cost (from the table above)	total.revenue	incremental cost	incremental revenhe	revenue - cost
0	60	1000	1080	-	-	80
1	135	1500	2430	500	1350	930
2	180	2000	3240	500	810	1240
3	210	2500	3780	500	540	1280
4	220	3000	3960	500	180	960

Please let me know if u are satisfied or not