Assignment:
- Redact a substantive response to a case presentation and to another comment by a classmates.
An Example of what would be “substantive”:
- In your group’s presentation, you refer to ….. in the 8th slide. I am not sure if I can agree with it because…….
- I enjoyed reading your post. While I broadly agree with your comments, I still believe that ……….
Notes:
I have attached the presentation you need to comment on, also see below a comment from another student to this presentation. I need a "substantive" replay to his comment and you can also use it as an example of how needs to be your comment on the presentation.
" This is a comment related to the case study of Group 2 – “Realizing the Dream: Decision Making in Action”.
I like how in the beginning of slide 1 the group not only gives us a background about their company but jump straight to the issue the company is currently faced with thinking strategically about how to introduce the case study along with the problem.
They do a really good job about specifically stating what a variable and fixed cost is based on their assigned companies expenses in case someone reading the presentation doesn’t fully understand. They even go an extra mile to put it in a chart so that people can see in greater detail what they are referring to. They clearly described in slide 20 the three possible approaches the company can take due to the situation of them losing referrals. Each option clearly explains how it could benefit the company as a whole allowing for one to analyze the benefits of each option individually. I couldn’t agree more with the idea of renegotiating the agreement with Manna Healthcare because in addition from receiving a lower patient referral from Manna Helathcare they also have a 40% revenue sharing agreement. Which if you come to think about is a pretty good amount if most of the referrals aren’t coming from them directly. They could also cut costs and try to save more by handling themselves more of the workload. Thinking about possibly increasing marketing and referrals through schools and the local community is a very good approach to increase referrals.
Although this group didn’t make a video recording of there presentation which might of been better they did do an excellent job with their overall slides presentation explaining and addressing all the important points of their case study."
Realizing the Dream: Decision-Making in Action
1
INTRODUCTION
Realizing the Dream: Decision-Making in Action focuses on the CEO of GEO Medical Laboratory. Wallas Akorful is in the health service business providing reasonably priced and fair quality laboratory and scan services in Ghana. The company primarily sold medical equipment, but eventually expanded in the medical market by providing medical laboratory exams and other testing services. Currently, his company is providing services for about three hundred patients a month, of which 120 patients (40%) are for laboratory services and 180 (60%) are for scanning services. However, the company is facing challenges as referrals have declined from the health facility, their partners. He suspects they are not keeping their part of the agreement of client referrals. This is affecting revenue and barely covers operational costs at times to keep the company profitable.
Wallas is now exploring opportunities and potential partners with other health facilities and schools. However, while the company will positively impact revenue, the proposed unit price per student is below what Wallas normally charges. It would still affect the company’s profit considering the additional variable costs for services provided. Having said that Wallas needs to weigh his options on these possible ventures to increase profit by increasing revenue and keeping costs down to stay in the healthcare business.
2
Types of Costs According to Cost Behavior
GEO Medical Laboratory incurs both fixed and variable costs, all of which are calculated in U.S. dollars.
Fixed Costs: Include the depreciation of lab and scan equipment, furniture, and computer types of equipment. Employee salaries (excluding ultrasonographers) are also considered fixed costs, as these are incurred regardless of the number of clients served.
Variable Costs: These include consumable expenses and commission-based compensation for ultrasonographers. The number of patients determines these costs.
Due to an agreement with the healthcare facility, rent and utilities are excluded from the company's fixed costs. Similarly, rent and utilities are not included in variable costs for the same reason.
Q#1
3
The fixed costs were derived using data from the case:
Table 1: Walla's Initial Investment, which provided the figures for the depreciation of lab and scan equipment, as well as furniture and computer equipment.
Table 3: Compensation Paid by GEO Medical Laboratory, which informed the salary breakdowns for lab technicians and administrative staff.
4
GEO Medical Laboratory – Breakdown of Monthly Fixed Costs
Summary of Fixed Costs:
Total Fixed Costs for Scan: $230.50
Total Fixed Costs for Lab: $717.17
Overall Total Fixed Costs: $947.67
5
The variable costs were derived using data from the case:
Table 2: Consumables Used by GEO Medical Laboratory, which provided per-unit costs for consumables.
Table 3: Compensation Paid by GEO Medical Laboratory, which provided commission-based details for ultrasonographers.
6
GEO Medical Laboratory – Breakdown of Monthly Variable Costs
Variable costs in Table 1b are tied to patient volume. This breakdown gives a clear view of variable costs and their impact on monthly expenses.
Consumables (e.g., reagents, syringes, gel) and commission-based compensation for ultrasonographers
Cost per patient is calculated by dividing the total monthly costs:
300 patients for shared scan and lab items, 180 patients for scan-specific items, and 120 patients for lab-specific items
Summary of Variable Costs:
Total Variable Costs for Scan: $4.52
Total Variable Costs for Lab: $3.24
Overall Total Variable Costs: $1,199.57
7
GEO Medical Laboratory – Final Monthly Cost Calculation
Fixed and variable costs for a complete monthly cost assessment of GEO Medical Laboratory:
Scan Services:
Fixed Costs: $230.50
Variable Costs: $4.52 per patient
Lab Services:
Fixed Costs: $717.17
Variable Costs: $3.24 per patient
Total Monthly Costs:
Fixed Costs for Both Services: $947.67
Variable Costs for Both Services: $1,199.57
Conclusion of Cost Analysis:
This cost analysis of both fixed and variable costs enables better understanding and control over the operational expenses incurred by the GEO Medical Laboratory for their scan and lab services. This breakdown helps in understanding which costs fluctuate based on patient volume and which remain constant.
8
GEO Medical Laboratory – Breakeven Point Analysis (Unit and Sales)
The breakeven point per patient is calculated by dividing the fixed costs by the unit contribution margin.
Breakeven sales are calculated by dividing fixed costs by the unit contribution margin.
GEO Medical Laboratory needs to care for 52 patients and generate $463.06 in revenue from scan services to break even.
For lab services, 90 patients and $1,007.26 in revenue are required to reach the breakeven point
GEO Medical Laboratory lab services require over 50% more patients and more than double the revenue to break even compared to scan services.
Q#2
9
GEO Medical Laboratory Cost Structure and Operating Leverage
Operating leverage is calculated by comparing fixed costs to variable costs.
Fixed Costs: 79% of variable costs, indicating a significant reliance on fixed expenses.
Operating Leverage Magnitude: 215%, showing high leverage.
High leverage means small sales changes greatly impact net income, increasing both profit potential and financial risk.
This level of leverage is typical for capital-intensive industries.
Operating leverage could be higher if additional fixed costs, like rent, were included.
Q#3
10
GEO Medical Laboratory Break-Even Analysis Overview – Multiproduct
Break-Even Point in Units
Q#4
11
GEO Medical Laboratory Break-Even Analysis Overview – Multiproduct
Break-Even Point in Revenue
Q#4
12
GEO Medical Laboratory Break-Even Analysis Overview – Multiproduct
Break-Even Volume
Q#4
13
Weighted-Average Contribution Margin (per unit)
We needed to use the weighted-average contribution margin per unit approach (Unit Contribution Margin x Sales Mix).
The sum of Fixed Cost Total and Target Profit is divided by the weighted-average contribution margin (per unit) to calculate the Breakeven Number of Patients.
The results is the company needs to schedule 670 patients in a month to make a $3,000 profit (268 patients for lab services and 403 for scan services).
Q#5
14
Revenue to Achieve Target Profit of $3,000
Revenue Needed to Achieve $3,000 Target Profit
Revenue Needed to Achieve $3,000 Target Profit
Q#6
15
Should Wallas Accept the School’s Offer?
Evaluation of the School’s Offer
Q#7
16
Background of Wallas' Entrepreneural Journey
Personal Catalyst
Unfortunate lab mistakes impacting his mother's health
Concern for accurate diagnoses and healthcare costs
Social Awareness
Importance of accurate medical diagnoses
Focus on improving community health outcomes
Q#8
17
Commitment to Community Health
Desire to Help
Strong motivation to support patients and families
Involvement with younger individuals and serious local health issues
Potential Risks
Risk of exploitation by individuals with less community-oriented motivations
Pressure to accept less-than-fair pricing for services
18
Strategic Opportunities for GEO Medical Laboratory
Increase Visibility
Offering services in a public setting to increase visibility of GEO Medical Laboratories
Community engagement to build trust and reputation
Long-term Impact
Potential for increased facility usage over time
Strengthening connections through social networks and local partnerships
19
Improving Profitability of GEO Medical Laboratory
There are three key areas that can improve the profitability of GEO Medical Laboratory:
1. Renegotiation of Manna Healthcare Agreement
2. Optimization of the Staffing Model
3. Increasing Marketing and Outreach Efforts
Q#9
20
1. Renegotiating Manna Healthcare Agreement
Wallas pays 40% of lab revenues for rent, utilities, and janitorial services.
Local average: GHS$960 (US$240) vs Current: US$622.20
Proposed: Flat fee closer to regional average
Alternative: Lower percentage on walk-in clients not referred by Manna
Relocation if renegotiation fails to control costs
21
2. Optimizing Staffing Model
Current staff: 2 full-time lab technicians for 120 lab clients per month.
Wallas could reduce costs by handling more of the workload himself.
Alternatively: Shift technician to part-time or commission-based role.
Align labor costs with actual volume of clients.
22
3. Increasing Marketing & Outreach Efforts
Target nearby schools, health facilities, and community centers.
Emphasize affordability and reliability of services.
Focus on high-demand areas like STI testing and health screenings.
Establish partnerships with local institutions.
23
In conclusion, the analysis of GEO Medical Laboratory highlights critical challenges and actionable strategies for improvement. The laboratory faces a significant decline in patient referrals from Manna Healthcare, compounded by a burdensome 40% revenue-sharing agreement that limits profit margins and strains financial resources. To achieve sustainability, it is essential for GEO to renegotiate this agreement, enhancing cash flow and alleviating financial pressure. Additionally, strategic marketing efforts targeting local schools and health facilities will be crucial in attracting new clients and increasing patient intake. Conducting thorough cost assessments before accepting new contracts will ensure their financial viability, while optimizing staffing levels to align with patient volume will help manage labor costs effectively. Finally, diversifying services, such as incorporating eye screenings in partnership with local opticians, can create additional revenue streams and strengthen community ties. By focusing on these strategies, GEO Medical Laboratory can better serve the health needs of the community while achieving long-term growth and stability.
Conclusion
24
Thank you
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