To determine whether the use of the contracted diabetic educator is cost-effective, you can calculate the total costs associated with the educator and compare them to the total revenue generated from the service. The goal is to see if the income from the patients taught exceeds the total expenses.
1. Calculate Total Costs: The total costs incurred for the diabetic educator for one month consist of the following:
- Educator Fees: $30 per patient for 20 patients
- Office Rent: $100
- Electricity and Internet: $50
- Office Supplies: $15
Total costs can be calculated as follows:
\[ \text{Total costs} = (\text{Educator Fees}) + (\text{Office Rent}) + (\text{Electricity and Internet}) + (\text{Office Supplies}) \] \[ \text{Total costs} = (30 \times 20) + 100 + 50 + 15 \] \[ \text{Total costs} = 600 + 100 + 50 + 15 = 765 \]
2. Calculate Total Revenue: The revenue generated from the patients taught is simply the amount billed for the services rendered:
\[ \text{Total revenue} = \text{Educator Fees} \times \text{Number of Patients} \] \[ \text{Total revenue} = 30 \times 20 = 600 \]
3. Calculate Gain or Loss: Now that you have both the total costs and total revenue, you can calculate the net gain or loss:
\[ \text{Gain or Loss} = \text{Total Revenue} - \text{Total Costs} \] \[ \text{Gain or Loss} = 600 - 765 = -165 \]
The result indicates a loss of $165 in one month.
4. Ratio Formula: To express the cost-effectiveness of the program, you can use a simple ratio:
\[ \text{Cost-Effectiveness Ratio} = \frac{\text{Total Costs}}{\text{Total Revenue}} \] \[ \text{Cost-Effectiveness Ratio} = \frac{765}{600} \approx 1.275 \]
A ratio greater than 1 signifies that costs exceed revenues, indicating a loss is occurring and thus suggesting that the current model may not be cost-effective. A ratio of less than 1 would signify a profitable situation. The ratio here shows that for every dollar made, approximately $1.28 is spent, highlighting unsustainability in the current operational model.
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