Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 41

Optometry Practice
You are evaluating ways to expand an optometry practice and its earnings capacity. Optometrists perform eye exams, prescribe corrective lenses (eyeglasses and contact lenses), and sell corrective lenses. One way to expand the practice is to hire an additional optometrist. The annual cost of the op­tometrist, including salary, benefits, and payroll taxes, is $63,000. You estimate that this individual can conduct two exams per hour at an average price to the patient of $45 per exam. The new op­tometrist will work 40-hour weeks for 48 weeks per year. However, because of scheduling conflicts, patient no-shows, training, and other downtime, the new optometrist will not be able to conduct, bill, and collect 100 percent of his or her available examination time.
From past experience, you know that each eye exam drives additional product sales. Each exam will lead to either an eyeglass sale with a net profit (revenue less cost of sales) of $90 (not including the exam fee) or a contact lens sale with net profits of $65 (not including the exam fee). On average, 60 percent of the exams lead to eyeglass sales, 20 percent lead to contact lens sales, and 20 percent of the exams lead to no further sales.
Besides the salary of the optometrist, additional costs to support the new optometrist include: Required:
In terms of the percentage of available time, what is the minimum level of examinations the new optometrist must perform to recover all the incremental costs of being hired?