Management accounting, simulations & linear progr.

Assessment Item 2

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Picture this: 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.  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.   The difference in this design is the floor needs to be rotating enabling patients to be moved around without walking.   

 

Your mates are Arty the architect, Doc the doctor, Mark the marketing manager and yourself a management accountant.  As a group you work on the tender criteria together. 

 

Question 2                                                                                                                               (10 marks)

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 arrivals

Number of occasions

10

15

15

30

20

25

25

20

30

10

 

Appointment length

Number of occasions

7

40

12

20

15

20

20

10

30

10

 

Required:

a)      What is the probability that the time between arrivals will be 20 minutes or more?      (1 mark)

b)      What is the probability that the appointment time will be 12 minutes or less?              (1 mark)

c)      Using monte carlo simulation with the random numbers below, simulate 5 arrivals and 5 appointments:                                                                                                                          (4 marks)

Random numbers:

Random number

Arrival time

Appointment length

35, 92, 05, 44, 75

4, 2, 6, 9, 4

 

d)      After 5 simulations what is the total waiting time of patients?                                     (2 marks)

e)      What is the total idle time of the doctor at the end of the first hour?                           (1 mark)

f)       What is the largest queue of students that forms?                                                                    (1 mark)

 

 

Question 3                                                                                                                               (15 marks)

Your mate Arty the architect is feeling overwhelmed by the idea of designing the rotating the floor in the medical centres, and questions if it is worthwhile in the long-run spending all the time designing and building

Required

a)      Explain to Arty what is meant by a ‘learning curve and explain the learning curves role in cost estimation.                                                                                                                        (5 marks)

b)       How does a learning curve differ from an experience curve?                                    (5 marks)

c)      What is an 80% cost experience curve?                                                                                   (5 marks)

 

 

 

Question 4                                                                                                                               (20 marks)

Once the medical centre is up and running the company is looking into setting up a shared services centre which will be responsible for accounts payable and receivable.  To also help control costs the centres pharmacy will supply all the medical supplies that the doctors need.   The pharmacy will be open 24 hours a day.  A pharmacy employee will restock medical supplies every night at a cost of $40.00 per room for 6 months and then the price will increase to $42.50 for the next 2 years.  The medical centre manager has however received a costing from an outside pharmacy (Dealers Direct) that will perform the same role at a cost of $27.50.  The variable cost per room is $ 23.00.  The medical centre pharmacy has capacity to supply the room’s needs

The medical centre manager wants to use Dealers Direct to provide all the medical supplies and is looking to you to help prepare an analysis to support his change of pharmacy.

 

Required

a)      Explain how transfer pricing is relevant in a shared services environment.  In your answer explain the meaning of shared services and outline their advantages and disadvantages.              (5 marks)

b)      What would be a suitable price for the medical centre to accept from the pharmacy, explain your answer?                                                                                                                        (5 marks)

c)      Would the transfer price alter if the medical centre has no spare capacity?  Explain your answer                                                                                                                                           (5 marks)

d)      Describe the potential conflict between the medical centre management and the company as a whole when it comes to deciding transfer pricing situations.  In your response include a discussion of why it is not desirable for the Board of directors to get involved.                                              (5 marks)

 

 

 

Question 5                                                                                                                               (15 marks)

Marty the marketing manager would like you to review one of his marketing strategies he has put together.  He is aiming at offering ‘experience packages’ for patients with a point of difference being the main focus.  Patients will come in and be pampered and has come up with 3 packages which offer varying degrees of medical treatment. You are however a little concerned about the figures in his proposal.

 

The packages consist of either a luxurious, customary or standard experience.  The packages use all the same equipment and cost the same to prepare but depending on the type of service there is a difference in cost.  An estimated cost of each package is below including the budgeted cost limit.

 

 

Standard

Customary

Luxurious

Available Budget

Price

$250.00

$400.00

$500.00

 

 

 

 

 

 

Direct labour

$75.00

$125.00

$200.00

$1000

Preparation

$50.00

$50.00

$50.00

$500

Clean-up

$50.00

$75.00

$75.00

$500

Variable overhead

$50.00

$100.00

$150.00

$500

 

Required:

a)      Formulate a linear program to determine the expected mix of medical treatments to ensure the maximum profit is obtained.  Provide all workings and solve using a computer package (eg solver in excel) to generate the ideal solution.                                                                              (8 marks)

b)      You have reviewed Marty budget and think his figures are incorrect and the available budget for direct labour is more like $2,000.00, preparation is $1000, clean-up is $1,500 and variable overhead is more realistic at $1,750.  Re-run solver to see if the outcome has changed and make comment.                                                                                                                                         (7 marks)

 

 

 

 

Question 6                                                                                                                               (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 years expected patients.  It has been estimated that the clinics relevant range is 150 to 300 patients per day.

 

Month

Emergency appointments

Patients per day

Administrative costs ($)

January

30

350

2780

February

32

125

1400

March

20

100

1200

April

30

250

2000

May

34

325

2380

June

38

225

1840

July

26

275

2040

August

24

75

820

September

34

175

1880

October

34

300

2220

November

26

150

1660

December

42

375

3220

 

Required:

a)      Identify the number of emergency appointments, patient load and administrative costs for each month within the relevant range                                                                                              (5 marks)

b)      Construct an excel spreadsheet and create a regression analysis to estimate

                                                        i.            An equation with patient per day predicting administrative cost within the relevant range                                                                                                            (2 marks)

                                                      ii.            An equation with both activities – patients per day, number of emergency appointments predicting administrative costs within the relevant range         (3 marks)

 

c)      Does the inclusion of an additional cost driver improve the model? Explain your answer      (5 marks)

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