2. Remodel the outpatient recovery rooms so that some of the Phase II space could be used for Phase I recovery. This would cost $2,000 per day and enable the outpatient surgery center to perform 40 surgeries per day. They would then send 20 patients to the hospital's regular operating rooms.

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University Hospital has two separate units that are part of the hospital but are two separate facilities. The first is the main hospital that performs emergency room functions, surgeries, and recovery. Separate from the main hospital is an outpatient surgery center. In an effort to control costs, some of the patients that need minor surgeries are routed to the outpatient surgery center. The outpatient surgery center treats patients in three activity centers: (1) Surgery, (2) Phase I recovery, where patients recover while the patients are still asleep, (3) Phase II recovery, where patients recover while they are awake. Phase II recovery ends when the patients go home. Daily capacities and production levels are as follows.

                                          surgeryphase i recoveryphase ii recovery

Daily Capacity (surgeries)40                    30                 60

Daily Production (surgeries)30                    30                  30

The hospital receives an average of $1,000 per surgery. (The surgeon’s fee and the anesthesiologist’s fee are billed separately.) The variable cost per surgery is $300. There is sufficient demand for surgeries that the hospital could perform 60 surgeries per day. Surgeries not performed by the outpatient surgery center are sent to the main hospital’s regular surgery rooms. The variable cost per surgery for regular surgery in the main hospital is $700, while the hospital still receives $1,000 per surgery. The hospital management is considering the following alternatives:

answer : $32000

Explanation:

When we remodel the problem we have to make two(2) calculations

Outpatient surgery center

Revenue from surgery = 40 * $1000 = $40000

variable cost per  surgery = 40 * $300 = $12000

contribution = ( revenue - variable cost ) =  $28000

cost incurred = $2000

Total = contribution - cost incurred = $26000

Regular surgery room

Revenue form surgery = 20 * $1000 = $20000

Variable cost per surgery = 20*$700 = $14000

contribution = ( revenue - variable cost ) = $6000

Therefore the Total income made by remodeling the outpatient recovery

=  $26000 + $6000

= $32000

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