There is a general practitioner whose offices are located in the South Falls Professional Building. In the past, the Dr. has operated his practice with a nurse, a receptionist/secretary, and a part-time bookkeeper. The Dr. like many small-town physicians, has billed his patients and their insurance companies from his own office. The part-time bookkeeper, who works 10 hours per week, is employed exclusively for this purpose.
A Physician’s Service Center has offered to take over all of the Dr. billings and collections for an annual fee of $8,000. If the Dr. accepts this offer, he will no longer need the bookkeeper. The bookkeeper’s wages and fringe benefits amount to $14 per hour, and the bookkeeper works 50 weeks per year. With all the billings and collections done elsewhere, the Dr. will have two additional hours available per week to see patients. He sees an average of four patients per hour at an average fee of $35 per visit. The Dr’s practice is expanding, and new patients often have to wait several weeks for an appointment. He has resisted expanding his office hours or working more than 50 weeks per year. Finally, if the Dr. signs on with the center, he will no longer need to rent a records storage facility for $100 per month.
(a) Calculate the net benefit (cost) of outsourcing the bookkeeping.