ABC Inc. is planning to build another limited use regional facility on the south side of town. This regional facility will provide a limited set of procedures and refer other procedures to other locations in the system with wider offerings. For the purposes of this problem, we will only focus on year 1 sales and variable costs. Total sales for the new facility are expected to be $48 million. Of this, the anticipation is that $10 million comes from patients that would have otherwise been served at either the main hospital or at one of our other locations (each of which has capacity). Due to the expanded geographic footprint, patients that are expected to be attracted to the new location of AH Hospital are also expected to be referred to other facilities in the AH system. These referrals are expected to be $14 million in new sales. For ease of estimation variable costs are estimated at 65% of sales. 

What is the amount of the sales and variable costs that should be used when evaluating the addition of the new facility?

Answer rating: 100% (QA)

When evaluating the addition of the new facility we need to consider the incremental sales and varia... View the full answer