Sales Mix Decision

Sales Mix Decision

Dr. Massy, who specializes in internal medicine, wants to analyze his sales mix to find out how the time of his

physician assistant, Consuela Ortiz, can be used to generate the highest operating income.

Ortiz sees patients in Dr. Massy's office, consults with patients over the telephone, and conducts one daily

weight-loss support group attended by up to 50 patients. Statistics for the three services are as follows:

Office Visits Phone Calls Weight-Loss Support

Group

Maximum number

of patient billings per day

20 40 50

Hours per billing .25 .10 1.0

Billing rate $50 $25 $10

Variable costs $25 $12 $5

Ortiz works seven hours a day.

Required

1. Determine the best sales mix. Rank the services offered in order of their profitability.

2. Based on the ranking in I, how much time should Ortiz spend on each service in a day? (Hint:

Remember to consider the maximum number of patient billings per day.) What would be the daily total

contribution margin generated by Ortiz?

3. Dr. Massy believes the ranking is incorrect. He knows that the daily 60-minute meeting of the weightloss

support group has 50 patients and should continue to be offered. If the new ranking for the

services is (1) weight-loss support group, (2) phone calls, and (3) office visits, how much time should

Ortiz spend on each service in a day? What would be the total contribution margin generated by Ortiz,

assuming the weight-loss support group has the maximum number of patient billings?

4. Manager Insight: Which ranking would you recommend? What additional amount of total contribution

margin would be generated if your recommendation is accepted?