41 An independent MRI services company wishes to expand thei

4.1 An independent MRI services company wishes to expand their present operation by adding

another center. Four locations have been studied. Each potential site would have the same

labor and materials costs, of $ 200 per procedure. The MRIs generate revenue of $ 375 irrespective

of location. Rental and equipment costs per year for the four sites are as follows:

Location A: $ 525,000

Location B: $ 585,000

Location C: $ 480,000

Location D: $ 610,000.

a. Determine the volume necessary at each location to realize $ 2,000,000 in profi ts,

and which location is the most likely candidate.

b. If the expected volumes of MRIs are, respectively, 15,500; 20,200; 18,300; and

19,200 for locations A, B, C, and D, which location should be chosen?

Solution

a.) To generate $2,000,000 in profit, you will need to have enough procedures to cover the expenses, and then some. Each MRI costs $200/procedure and bringa in $375/procedure. This means that each procedure has a revenue of $175.

For site A: 2,000,000=175X-525,000 --> X=14,529 procedures

For site B: 2,000,000=175X-585,000 --> X=14,772 procedures

For site C: 2,000,000=175X-480,000 --> X=14,172 procedures

For site D: 2,000,000=175X-610,000 --> X=14,915 procedures

So site C is the most likely candidate to generate this profit because it requires the least amount of procedures to generate $2,000,000.

b.) Now that we know how many procedures are going to be run at each location, we can calculate profit to see which site gets the closest to $2,000,000 or generates the most money:

Site A: 175(15,500)-525,000=$2,187,500

Site B: 175(20,200)-585,000=$2,950,000

Site C: 175(18,300)-480,000=$2,722,500

Site D: 175(19,200)-610,000=$2,750,000

Working with these numbers, we can say that Site B should be chosen.