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A national HMO has asked apediatric group practice to provide 3000 annual well baby visits at a payment of $35 per visit. Although the practice has the excess capacity, they would need to gire additional staff for $85000 as well as increase the supply of linens and thermometers at an average cost of $10 per visit. The practice has determined that the total contribution margin is positive and decides to accept the request and terms of the agreement. Why was this a poor decision? 1) Because the fixed cost of $10 per visit has increased. 2) Because fixed cost of $85000 was not deducted. 3) Because variable cost of $35 per visit has increased. 4) Because variable cost of $30000 was not deducted. Please explain in detail.

Financial Management, Finance

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