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SCHOOL OF CONTINUING STUDIES
POST-GRADUATE CERTIFICATE IN
ACCOUNTING
Bellaire Clinical Labs Inc.
Prepared by Ayesha Halari Student number – 220830790
INTRODUCTION In 1998, the US market for clinical laboratory testing was estimated to be worth $30 billion.
A superb small independent clinical laboratory that is privately owned and situated outside of Boston, Massachusetts is called Bellaire Clinical Labs Inc.
For three different client groups, the lab offers variable pricing packages along with routine blood testing and specialty testing: physicians, particular patients, and outside parties (private insurance companies, Medicaid, or Medicare).
Only a year ago, Marty Walters was brought on board as the lab's operations manager due to his proficiency in implementing big process modifications to cut down on material use and waste and routinely praising staff members' efforts to boost productivity.
A
review of the 1998 financial data, however, showed that there were no appreciable profit figures and that actual net revenue was about $1 million higher than projected revenue.
The net profit only increased by $6363 compared to the projected amount. The causes are still unknown and require close examination.
PROBLEM STATEMENT
How did Bellaire maintain making such frequent process improvements? was able to sustain its profits while bringing in an extra US$1 million in sales?
Why did a $1 million US increase in sales translate into a meagre $6363 profit over the estimated amount?
Calculating the difference between Actual Revenue and Planned Revenue Particulars Actual Revenue $
Planned Revenue $
Difference/
variance Net Revenue
Routine Testing 11676904
12160000
-483096
Unfavorable
Speciality Testing 5709496
4240000
1469496
Favorable Total Net Revenue 17386400
16400000
986400
Favorable Analysis Budgeted Test Volumes for 1998
Clients Routine Specialty Total Patient 160,000
40,000
200,000
Physician 400,000
100,000
500,000
Other Party 240,000
60,000
300,000
Total 1,000,000
Actual Test
Volumes for 1998
Clients Routine Specialty Total Patient 152,440
53,560
206,000
Physician 335,368
117,832
453,200
Other Party 274,392
96,408
370,800
Total 1030000
Test prices for 1998
Clients Routine Specialty Patient $17.00
$23.00
Physician $14.00
$20.00
Other Party $16.00
$22.00
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Budgeted Total
Revenue for 1998
Clients Routine Specialty
Total
Patient $2720000.00
$920000.00
$3640000.00
Physician $5600000.00
$2000000.00
$7600000.00
Other Party $3,840,000.00
$1320000.00
$5160000.00
$12,160,000.00
$4240000.00
$16400000.00
Actual Total
Revenue for 1998
Clients Routine Specialty
Total
Patient $2591480.00
$1231880.00
$3823360.00
Physician $4695152.00
$2356640.00
$7051792.00
Other Party $4390272.00
$2120976.00
$6511248.00
$11676904.00
$5709496.00
$17386400.00
Difference in
Test Rates Clients Actual Budgeted Variance Patient 20%
20%
0%
Physician 40%
50%
-6%
Other Party 36%
30%
6%
Difference in
Test Rates Types Actual Budgeted Variance Routine Testing 74%
80%
-6%
Speciality Testing 26%
20%
6%
Adverse Impact:
Cost/Routine = 0.36*$8.22 = $2.98 per routine test Labour hours/ Speciality = 139360/ (1030000 *26%) =0.52 hours/Speciality test Labour hour Routine test = 276640/ (130000*74%) = 0.52 hours/routine Cost/Speciality Test = 0.52*$19.6 =$10.19/Speciality test Price Differentiation $6 <Labour cost Differentiation $7.2
Bellaire Clinical Laboratories, Inc. overestimated routine tests and underestimated specialized tests, which led to a 6% decrease in testing. The company only exceeded its profit projections by $6,363, despite exceeding its projected sales budget by $986,400.
PORTER FIVE FORCES ANALYSIS:
Threat of new entrants: The clinical laboratory industry has a relatively high entry barrier because it requires specialized equipment and highly trained personnel. However, the threat of new entrants may still exist because of technological advancements and the potential for disruptive innovation.
Supplier Bargaining Power: Because suppliers in the clinical laboratory sector are essentially commodity providers with a wide range of options, their bargaining power is relatively low. Buyer Bargaining Power: Due to the abundance of rival clinical laboratories and the freedom for clients to select the location of their testing, buyers have a moderate to high degree of bargaining power.
Threat of Substitutes: The clinical laboratory industry faces minimal threat from substitutes because there are limited options to laboratory testing for medical diagnosis and treatment.
Competitive rivalry: There is fierce competition among the major national and regional players in the clinical laboratory sector as they fight for market share. Bellaire Clinical Laboratories, Inc. must set itself apart from the competition and develop a special value proposition.
ALTERNATIVES Corporate strategy: To grow its business, Bellaire Clinical Labs, Inc. might think about purchasing or collaborating with other clinical laboratories in different areas or states.
This would allow the business to grow both its clientele and its market share.
Bellaire Clinical Laboratories, Inc. can concentrate on differentiating itself by utilizing its business-level specialization in specialty testing and adaptable pricing plans. The business can also spend money on marketing and branding initiatives to raise brand awareness and draw in more clients. RECOMMENDATIONS
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Analyze the pricing strategy of the company in detail:
To make sure it is maximizing revenue and maintaining its competitiveness in the market, Bellaire Clinical Laboratories, Inc. should carefully review its pricing strategy.
This could involve evaluating the pricing packages provided to different customer segments, analyzing the profitability of the lab's various test offerings, and evaluating the effect of price changes on customer demand.
Raising prices in response to strong demand:
Bellaire ought to have been the one to
raise prices for specialty testing when demand warranted. It might have helped them offset the high labour variable costs for the specialized tests and raised profitability.
Formulate an effective cost-cutting plan:
Given the comparatively high cost of labour, other expenses should be kept under control and should be minimized. There are a lot of pointless advertising expenses that should be eliminated.
Perform Analysis and Research:
Bellaire needs to carefully evaluate the state of the
market at the designated times and develop pricing packages in line with those findings.
CONCLUSION In conclusion, Bellaire Clinical Laboratories, Inc. struggled to turn a profit even though it provided standard and specialized testing with flexible pricing options.
However, by examining its pricing strategy, making technological investments, and creating a marketing and branding plan, the business can expand and stay competitive in the clinical laboratory sector.
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