Mediocre Medical Centres

Attachment Excel Files:

MMC.xlsx MMC_formulas.xlsx

Question 1

1-What is the probability that the time between arrivals will be 20 minutes or more?

Time Number Cumulative

between of Relative Fr.
arrivals occasions Probability Probability
10 15 0.15 0.15
15 30 0.3 0.45
20 25 0.25 0.7
25 20 0.2 0.9
30 10 0.1 1
Total 100 1

So, P(time between arrivals >= 20) = 0.25 + 0.20 + 0.10 = 0.55.

Formula View:

Time between Number of Relative Cumulative

arrivals occasions frequency Fr.
10 15 =C6/$C$11 =D6
15 30 =C7/$C$11 =E6+D7
20 25 =C8/$C$11 =E7+D8
25 20 =C9/$C$11 =E8+D9
30 10 =C10/$C$11 =E9+D10
Total 100 =C11/$C$11
2-What is the probability that the appointment time will be 12 minutes or less?

Number
Appointment of Relative Cumulative
length occasions frequency Fr.
7 40 40% 40%
12 20 20% 60%
15 20 20% 80%
20 10 10% 90%
30 10 10% 100%
Total 100 100%

P(appointment time <= 12) = 0.40 + 0.20 = 0.60.

Formula View:

Number of Relative Cumulative

Appointment length occasions frequency Fr.
7 40 =C18/$C$23 =D18
12 20 =C19/$C$23 =E18+D19
15 20 =C20/$C$23 =E19+D20
20 10 =C21/$C$23 =E20+D21
30 10 =C22/$C$23 =E21+D22
Total 100 =C23/$C$23

3-Using Monte Carlo, 10 arrivals and appointments were simulated by random numbers ( these
numbers would differ with every simulation run):
Customer ID RN Interarrival time Time of arrival Waiting time Idle time Time of service started RN Service time Time of service ended Cycle time People waiting
1 - 0 0 0 0 0.99 30 30 30 0
2 0.97 30 30 0 0 30 0.24 7 37 7 0
3 0.61 20 50 0 13 50 0.74 15 65 15 0
4 0.04 10 60 5 0 65 0.97 30 95 35 1
5 0.07 10 70 25 0 95 0.63 15 110 40 1
6 0.01 10 80 30 0 110 0.02 7 117 37 2
7 0.31 15 95 22 0 117 0.99 30 147 52 2
8 0.45 15 110 37 0 147 0.91 30 177 67 2
9 0.13 10 120 57 0 177 0.09 7 184 64 2
10 0.07 10 130 54 0 184 0.15 7 191 61 2

4-After 5 simulations, what is the total waiting time of patients?

Total waiting time 5+25 = 30 minutes as per my result. Different results would be expected for
different simulations.
5-What is the total idle time of the doctor at the end of the first hour?

After the lapse of 65 minutes, we expect 13 minutes of idle time.

6-What is the largest queue of students that forms?

The largest queue expected would be 2 persons long.

Question 2
1-

Direct Construction Material $80,000

Direct Labour for first unit (hours) 3000
Learning Curve for constructing 90%
room
Labour Cost $25
Variable Overhead Costs $15

Learning Curve 90%

LC=aX^b
-
b=log90/log2 0.1520031

Rooms 1 2 4 8
Labour Hours per nth
unit 3000 2700 2187 1594

Rooms 1 2 4 8
Direct Construction
Material $80,000.00 $160,000.00 $320,000.00 $640,000.00
Total Labour Cost $75,000.00 $142,500.00 $197,175.00 $237,033.08
Variable Overheard Cost $45,000.00 $85,500.00 $118,305.00 $142,219.85
Total Variable Costs $200,000 $388,000 $635,480 $1,019,252

Formula View:

Learning Curve 0.9

LC=aX^b
b=log90/log2 =LOG(0.9)/LOG(2)

Rooms 1 2 4 8
Labour Hours per nth unit =D5 =D20*E19^$D$17 =E20*F19^$D$17 =F20*G19^$D$17

Rooms 1 2 4 8
Direct Construction Material =D4 =$D$24*E23 =$D$24*F23 =$D$24*G23
Total Labour Cost =D20*D7 =SUM(D20:E20)*D7 =SUM(D20:F20)*D7 =SUM(D20:G20)*D7
Variable Overheard Cost =D8*D5 =SUM(D20:E20)*D8 =SUM(D20:F20)*D8 =SUM(D20:G20)*D8
Total Variable Costs =SUM(D24:D26) =SUM(E24:E26) =SUM(F24:F26) =SUM(G24:G26)
2- Explain what is meant by a ‘learning curve' and the role learning curves have in cost
estimation.

With repetition the working efficiencies of the labour force increase as they are subjected to the
production of the same product in this case rooms; thus with the rise of efficiencies the time take to
construct the rooms will drop and thus that will lead to saving in direct labour costs as well as the
overhead costs which are apportioned with respect to direct hours.

Learning curves should therefore be incorporated in cost estimations because the subsequent room
is going to cost a little lower than the previous ones; so, with learning curves incorporated into the
cost estimation will lead to a realistic cost for tendering submission.

3- How does a learning curve differ from an experience curve?

While learning curve and experience curves are sometimes used interchangeably; they are actually
very different in practical meaning.

Experience curves tend to capture the costs saved over the total output of any function in the
organisation and not just the time of production as is the case with learning curves.

Thus, while learning curves are employed in production context; experience curves are interpreted
in the whole organisational context.

4-What is an 80% cost experience curve?

This statement implies that the cost per unit would reduce such that the ratio between cost per unit
and cumulative volume produced would be 80%.

Question 3
1-

Administrative
Patients Emergency
Month costs
per day Appointments
($)
January 350 2780 30
February 125 1400 32
March 100 1200 20
April 250 2000 30
May 325 2380 34
June 225 1840 38
July 275 2040 26
August 75 820 24
September 175 1880 34
October 300 2220 34
November 150 1660 26
 December 375 3220 42

Administrative costs
($) V Patiens Per Day
3500

3000
Administrative Costs

2500

2000

1500

1000

500

0
0 50 100 150 200 250 300 350 400
Patients Per Day

2-

Patients Administrative
Activity Range per day Costs
Min 75 $ 820
Max 375 $ 3,220

Formula View:

Activity Range Patients per day Administrative Costs

Min =MIN(C5:C16) =MIN(D5:D16)
Max =MAX(C5:C16) =MAX(D5:D16)

3-

Estimation of equation using

high-low method

Reg Equation:
y= a + b
x= patients per
day,
y= administrative costs
a = intercept
 b= gradient of line

x1=75 y1=820
x2=375 y2=3220

b= Δy/Δx 8
a= y1-bx1 220

Reg Equation : y =220+8x

b= Δy/Δx =(3220-820)/(375-75)
a= y1-bx1 =820-C38*75

4-

patients per day = 200

Prediction of Administrative costs = 220+8*200 =
$ 1820

5-

Emergency Patients per Administrative

Activity Range Ap. day Costs
Min 20 75 820
Max 42 375 3220

Formula View:

Activity Range Emergency Ap. Patients per day Administra

Min =MIN($E$5:$E$16) =MIN($C$5:$C$16) =MIN($D$5
Max =MAX($E$5:$E$16) =MAX($C$5:$C$16) =MAX($D$5

6.1

Regression analysis is following:

x y xy x^2
Patients Per Day Admin Cost Product Squares
350 2780 973000 122500
125 1400 175000 15625
100 1200 120000 10000
 250 2000 500000 62500
325 2380 773500 105625
225 1840 414000 50625
275 2040 561000 75625
75 820 61500 5625
175 1880 329000 30625
300 2220 666000 90000
150 1660 249000 22500
375 3220 1207500 140625
2725 23440 6029500 731875

n 12 Σx^2 731875
Σx 2725 (Σx)^2 7425625
Σy 23440 Σxy 6029500

b= 6.25
a= 534.14

Reg Equation: y=534.14+6.25x

Formula View:

n 12 Σx^2 =
Σx =B75 (Σx)^2 =
Σy =C75 Σxy =

=(C78*E80-C79*C80)/(C78*E78-
b= E79)
a= =(C80-C82*C79)/C78

Note: I have also done this through solver tool in excel; results of which can be found below.

SUMMARY OUTPUT

Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

ANOVA

Regression
 Residual
Total

Intercept
Patients Per Day

6.2

Multiple Linear Regression analysis is following:

Administrative
Patients Emergency
costs
per day Appointments
($)
2780 350 30
1400 125 32
1200 100 20
2000 250 30
2380 325 34
1840 225 38
2040 275 26
820 75 24
1880 175 34
2220 300 34
1660 150 26
3220 375 42

SUMMARY
OUTPUT

Regression Statistics
Multiple R 0.963963269
R Square 0.929225184
Adjusted R Square 0.913497448
Standard Error 194.5490243
Observations 12

ANOVA
Significance
df SS MS F F
Regression 2 4472422.761 2236211.381 59.08193893 6.67505E-06
Residual 9 340643.9056 37849.32284
Total 11 4813066.667

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

 -
Intercept 205.358817 305.7386682 0.671680878 0.51865437 486.2701012 896.9877351
Patients per day 5.681071589 0.743798408 7.637918461 3.19842E-05 3.998482694 7.363660485
Emergency -
Appointments 14.85074085 12.20906214 1.216370323 0.25478115 12.76807651 42.46955821

6.3 Does the inclusion of an additional cost driver improve the model? Explain
your answer

Yes. The introduction of the additional cost driver improves the model accuracy because if
we look closely then the administrative costs are also being incurred due to the Emergency
Appointments in the medical centre.

Emergency centre is also a cost centre which needs to be administered with services like
cleaning, protection, reception etc.

And thus these services raise the costs for the medical centre.

Question 4

1- Determine MMC budgeted net profit for the coming year

Roses Natives Imported Total

Unit Sales of Varieties 50,000 50,000 100,000

Selling Price of Varieties 30 45 54
Variable Cost of Varieties 19 26 34
Variable Selling OH of
Varieties 7 10 12
Contribution/unit (SP-VC-VOH) 4 9 8
Sales Mix x x 2x 4x
Contribution*Sales mix 4x 9x 16x 29x
 Fixed Cost

Manufacturing OH 400,000

Selling & Admin Cost 350,000

Tax Rate 40%

To break even total contribution should cover fixed

cost

29x = 400000+350000
29x = 750000
x=25862

Roses Natives Imported

No of units for break even of
MMC 25,862 25,862 51,724

Formula View:

Roses Natives Imported Total

Unit Sales of Varieties 50000 50000 100000
Selling Price of Varieties 30 45 54
Variable Cost of Varieties 19 26 34
Variable Selling OH of Varieties 7 10 12
Contribution/unit (SP-VC-VOH) =D4-D5-D6 =E4-E5-E6 =F4-F5-F6 =D4-D5-D6
Sales Mix x x 2x 4x
Contribution*Sales mix 4x 9x 16x 29x
Fixed Cost
Manufacturing OH 400000
Selling & Admin Cost 350000
Tax Rate 0.4

To break even total contribution should cover fixed cost

29x = 400000+350000
29x = 750000
x=25862

Roses Natives Imported

No.units for break even 25862 25862 =E22*2

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

Roses Natives Imported Total

Selling Price (SP) 30 45 54
 Variable Cost (VC) 19 26 40.8
Variable Selling OH (VOH) 7 13 12
Contribution/unit (SP-VC-VOH) 4 6 1.2
Sales Mix x x 3x
Contribution*Sales mix 4x 6x 3.6x

Fixed Cost

Manufacturing OH 400,000

Selling & Admin Cost 350,000

To break even total contribution should cover fixed cost

13.6x =
400000+350000
13.6x = 750000
x=55147

Variety Roses Natives Imported

No.units for break even 55,147 55,147 110,294

Formula View:

Roses Natives Imported Total

Selling Price (SP) 30 45 54
Variable Cost (VC) 19 26 40.8
Variable Selling OH (VOH) 7 13 12
Contribution/unit (SP-VC-VOH) =D27-D28-D29 =E27-E28-E29 =F27-F28-F29
Sales Mix x x 3x
Contribution*Sales mix 4x 6x 3.6x
Fixed Cost
Manufacturing OH 400000
Selling & Admin Cost 350000

To break even total contribution should cover fixed cost

13.6x = 400000+350000
13.6x = 750000
x=55147

Variety Roses Natives Imported

No.units for break even 55147 55147 =D44*2
 3- Given the results of the part 2 of the question, Natives have the highest contribution
margins and thus the management at MMC should promote this product and sell as much as
possible to maximise the contribution towards fixed costs and profit.

This will help MMC to rake in higher contributions and thus profits.

4- The contribution from the imported variety has reduced because no increase in costs was
transferred to the consumers and thus the contribution margins have reduced for this
variety.

There are 2 courses of actions: either to increase the selling price of Imported to raise the
contribution margins of this line or to promote the other 2 varieties to an increased overall
contribution.

If the management can’t transfer the cost increase to the consumers then the 2nd course of
action should be taken up and the other 2 varieties should be promoted heavily.

Question 5

1-

Qualitative and quantitative approaches are available for forecasting.

Qualitative approaches are judgmental and opinion based and can be grouped as following:

 Delphi Techniques
 Sales force Polls
 Executive Opinions
 Consumer Survey

The stage of product life cycle determines the forecasting technique that should be used; the
forecasting tools used are also influenced by the industry the organisation is operating in.

Initial stages of product design require detailed market studies and thus the costs and scope of
qualitative forecasting is usually higher at the initial stages.

The need for these forecasting techniques tapers down as the product matures and acquires a
customer base.

Qualitative techniques are often used in conjunction with quantities techniques for short term
forecasts to refine quantitative results.
Quantitative techniques are very cost effective and quick; as they rely in some cases (executive
opinions) on experience of the staff and can be sought internally.

The disadvantage of these techniques is that they can be arbitrary and can introduce bias of the
polled sample.

2-

‘High correlation between two variables means that one is the cause and the other is the effect’- this
is a wrong statement because while 2 variables can be correlated; it cannot be assumed that they
have a cause-effect relationship.

The causality of variables is different than the correlation.

As an example:

One can argue that the sales of ice creams is causing the sales of sunglasses; but while the
correlation would be there; the causation is missing.

Both of variables are actually influenced by the rise in temperature; thus the cause and effect
relation (causation of increase in ice cream sales & sunglasses is with temperature and not among
themselves).