BSBPMG522 Assessment Item 3 Answers

You and a few friends have just graduated from Charles Sturt University and see in the newspaper the opportunity to submit a tender to build 6 new medical centres.  The medical centre is a franchisee of Mediocre Medical Centres (MMC).  If the tender is successful, part of the job will involve designing a prototype medical centre which will consist of 10 consulting rooms, 2 surgery’s, a community health section, pharmacy and a café.  You are required to present your responses as a business report addressed to MMC.

Question 1  (10 marks)

Management of the new medical centre wants you to simulate the day appointments schedule for one doctor.  An analysis has been done predicating one week’s operation and has come up with the following results:

Time between arrivalsNumber of occasions
1015
1530
2025
2520
3010

Appointment lengthNumber of occasions
740
1220
1520
2010
3010

Required:

  1. What is the probability that the time between arrivals will be 20 minutes or more?   (1 mark)
  2. What is the probability that the appointment time will be 12 minutes or less?   (1 mark)
  3. Using Monte Carlo, simulate 10 arrivals and 10 appointments using random numbers:  (4 marks)
  4. After 5 simulations, what is the total waiting time of patients?  (2 marks)
  5. What is the total idle time of the doctor at the end of the first hour?  (1 mark)
  6. What is the largest queue of students that forms?  (1 mark)

Question 2  (20 marks)

MMC has just completed a prototype of a medical room and has the following information

Direct construction material                                                     $80,000

Direct labour time for the first unit (hours)                              3,000

Learning curve for constructing the room                                 90%

Labour cost                                                                                              $25

Variable overhead costs                                                                     $15

Required

  1. Calculate the total variable costs for producing 2, 4 and 8 rooms  (10 marks)
  2. Explain what is meant by a ‘learning curve’ and the role learning curves have in cost estimation.  (4 marks)
  3.  How does a learning curve differ from an experience curve?  (3 marks)
  4. What is an 80% cost experience curve?  (3 marks)

Question 3  (30 marks)

The medical centre tender selection panel have provided you with some estimated figures of the number of emergency appointments, patients per day and the associated administrative costs for the first year of operation.  Below is the summary of the year’s expected patients.  It has been estimated that the clinic’s relevant range is 150 to 300 patients per day.

MonthEmergency appointmentsPatients per dayAdministrative costs ($)
January303502780
February321251400
March201001200
April302502000
May343252380
June382251840
July262752040
August2475820
September341751880
October343002220
November261501660
December423753220

Required:

  1. Draw a scatter diagram of the clinics’ administrative costs and patients per day during its first year of operations.  ( 5 marks)
  2. Mark the clinics’ relevant range of activity on the scatter diagram  (3 marks)
  3. Use the high-low method to estimate the behaviour of the clinics’ administrative costs based on patients per day within the relevant range.  Use an equation to express the results of this estimation method.  (5 marks)
  4. What is your prediction of the clinics administrative costs during the month when 200 patients visit?    (2 marks)
  5. Identify the number of emergency appointments, patient load and administrative costs for each month within the relevant range  (5 marks)
  6. Construct an excel spreadsheet and create a regression analysis to estimate
    1. An equation with patient per day, predicting administrative cost within the relevant range  (2 marks)
    2. An equation with both activities – patients per day and number of emergency appointments, predicting administrative costs within the relevant range  (3 marks)
    3. Does the inclusion of an additional cost driver improve the model? Explain your answer  (5 marks)

Question 4  (30 marks)

Mediocre Medical Centre would like you to investigate building a florist in the medical centre.  There would be 3 products: Roses, Natives and Imported flowers.  Based on an analysis from another florist shop, there seems to be considerable variation in sales volume and variable costs.  You believe that the forecast should be evaluated from a cost-volume-profit viewpoint.  The preliminary budget information is as follows:

RosesNativesImported
Units sales50,00050,000100,000
Unit selling price$30$45$54
Variable cost per unit$19$26$34
Variable selling cost per unit$7$10$12

For the coming year, fixed manufacturing overhead is budgeted at $400,000.  The company’s fixed selling and administrative costs are forecast to be $350,000.  Mediocre Medical Centre will pay tax at 40%.

Required:

  1. Determine MMC budgeted net profit for the coming year  (5 marks)
  2. Assuming the sales mix remains as budgeted, determine how many units of each product MMC must sell in order to break even in the coming year.  (10 marks)
  3. After preparing the original estimates, management determines that the variable manufacturing cost of imported flowers would increase by 20% and the variable selling cost of natives could be expected to increase by $3.00 per units.  However, management has decided not to change the selling price of either product.  In addition, management have learned that imported flowers are perceived to be the best value for money, and they can expect to sell three times as many imported flowers as each of their other products.  Under these circumstances, determine how many units of each product MMC would have to sell in order to break even in the coming year.   (10 marks)
  4. Write a one-page memo to management, recommending what action they should take, as determined in Parts 2 and 3.  Provide justification for your choice.  (5 marks)

Question 5  (10 marks)

  1. Describe what qualitative forecasting models are. What are the advantages and disadvantages of this modelling?  (5 marks)
  2. “High correlation between two variables means that one is the cause and the other is the effect”.  Explain this statement   (5 marks)