Question

We have made the point that managers often attempt to maximize the contribution margin per unit of a particular resource that limits output capacity. The following is the businesses I chose:

1. Small medical or dental practice

As an employee, write an internal memo to your manager addressing the following:

• For each type of business, identify the factor that you believe is most likely to limit potential output capacity.
• Suggest several ways (other than raising prices) the business can maximize the contribution margin per unit of this limiting resource. (Hint: These businesses often do implement the types of strategies you are likely to suggest. Thus, your solution to this case may explain basic characteristics of businesses that you personally have observed.)

Answer 1

According to the question, a small medical or dental practice would consist of:

1. Experienced Dentists

2. Compassionate staff

3. Latest Technological equipments

4. Fast & quality services

Factors that would most likely to limit potential output capacity:

1. Limited Capital: If we have limited capital/ resources in our organization then we would not able to expand in terms of new equipments & technologies.

2. Limited & unskilled labour: Limited and unskilled labour would effect overall quality of services and various other factors like friendly environment, proper nursing, fast services etc.

3. Nature of market: For healthcare sector, customization of service is an essential factor to survive in the market. For example: if a particular patient does not find the doctor, staff, environment & the services provided not upto the mark then he might change the clinic.

4. Geographical area: If the clinic is not in the reach of patients then it would effect the overall productivity of the service that the clinic is offering.

The business should implement Management Control System are a set of rules that steer the business towards its goals. It includes strategies like responsiblity accounting and transfer pricing, budgeting, performance measurement, performance evaluation etc. Implementation of management control system would control input, process, output at all levels of organizational structure.

Some of the ways that can maximize the contribution margin of this service are as follows:

1. Efficient equipments would help the business in controlling the direct cost required in the services.

2 Idle inventory should be reduced to control the wastage of idle resources.

3. Bringing in complimentary services like chemist facilities for the convenience of the patients and their attendants.

All these ways will help in reducing the cost, keeping the price of the services same will increase contribution margin and overall profit of the business.