Lecture 10Activity-Based Costing Example: The Dialysis Clinic

Dialysis Clinic, Inc.Two types of Dialysis:

Hemodialysis (HD)Peritoneal dialysis (PD)Equipment intensive, in-clinic treatment

3 treatments per week

102 patients

$1.9 million in revenuesself-administered, in-home treatment

Daily treatment

62 patients

$1.1 million in revenues

Dialysis Clinic, Inc.Summary of Costs and Identification of Cost Drivers:

Cost CategoryTotal CostAlloc-ation BaseUnits of Allocation BaseHDPDTotal

Standard Supplies$664,900 Not applicable: these are direct costsEpisodic Supplies$310,695

Dialysis Clinic, Inc.Summary of Costs and Identification of Cost Drivers:

Cost PoolTotal CostAllocation BaseUnits of Allocation BaseHDPDTotal

Nursing RNsLPNsAdmin.Tech.s Total$239,120 404,064 115,168 124,928

$883,280RN FTEsLPN FTEstreatmentsdialyzer treatments51514,34314,3432420,624071934,96714,343

Nursing RNsLPNsAdmin.Tech.s Total$239,120 404,064 115,168 124,928

$883,280RN FTEsLPN FTEstreatmentsdialyzer treatments51514,34314,3432420,624071934,96714,343

Dialysis Clinic, Inc.Summary of Costs and Identification of Cost Drivers:

Cost PoolTotal CostAlloca-tion BaseUnits of Allocation BaseHDPDTotal

General facilityAdminRecordsUtilities Total$233,226 354,682 157,219 40,698

$785,825Sq ftpatientstreatmtsKilowatts18,90010214,343563,29511,1006220,62499,40530,00016434,967662,700

Dialysis Clinic, Inc.Summary of Costs and Identification of Cost Drivers:

Cost PoolTotal CostAlloc-ation BaseUnits of Allocation BaseHDPDTotal

Dur-able equip-ment137,046Nursing Svc Cost$661,966$221,314$883,280

Dialysis Clinic, Inc.Calculation of Overhead Rates:

Cost PoolTotal costTotal Units of AllocationBaseOverhead RateNursingRNsLPNsAdminTechnicians Total$239,120404,064115,168124,928$883,28071934,96714,343$34,160 per RN FTE$21,267 per LPN FTE$3.29 per treatment$8.71 per dialyzer treatment

Dialysis Clinic, Inc.Calculation of Overhead Rates:

Cost PoolTotal costTotal Units of AllocationBaseOverhead RateGeneralFacility AdminRecordsUtilities Total$233,226354,682157,21940,698$785,82530,00016434,967662,700$7.774 per sq ft$2,163 per patient$4.496 per treatmt$0.0614 per kilowatt

Dialysis Clinic, Inc.Calculation of Overhead Rates:

Cost PoolTotal costTotal Units of AllocationBaseOverhead RateDurable equipment$137,046$883,280$0.15516 per nursing service dollar

Dialysis Clinic, Inc.Allocation of Costs using A.B.C.:

Cost CategoryO/H RateHDUnitsHDCostPDUnitsPDCostStandard supplies

Episodic SuppliesDirect cost

Direct cost$512,619

98,680$152,281

$212,015

Dialysis Clinic, Inc.Allocation of Costs using A.B.C.:

Cost PoolO/H RateHDUnitsHDCostPDUnitsPDCostNursingRNsLPNsAdminTech.s Total34,16021,2673.298.715 FTEs 15 FTEs 14,343* 14,343*

* treatments$170,800318,99847,240124,928$661,9662420,6240$68,32085,06667,9280221,314

Dialysis Clinic, Inc.Allocation of Costs using A.B.C.:

Cost PoolO/H RateHDUnitsHDCostPDUnitsPDCostgeneralfacilityadminrecordsutilities Total7.7742,1644.496.061418,900 sq ft102 patient14,343563,295$146,933220,59564,48934,593$466,61011,1006220,62499,405$86,293134,08792,7306,105319,215

Dialysis Clinic, Inc.Allocation of Costs using A.B.C.:

Cost PoolO/H RateHDUnitsHDCostPDUnitsPDCostdurable equip-ment$.15516 per nursing dollar661,966$102,785221,314$34,261

Dialysis Clinic, Inc.Summary of Costs:

Cost CategoryHDPDStandard SuppliesEpisodic SuppliesNursing ServicesGeneral OverheadDurable equipment Total$512,61998,680661,966466,610102,785$1,842,660$152,281212,015221,314319,21534,261$939,086

Dialysis Clinic, Inc.Summary of profitability:

HDPDTraditional CostingRevenueDirect CostsIndirect Costs Net IncomeActivity-Based CostingRevenueDirect CostsIndirect Costs Net Income$1,860,287611,2991,389,347($140,359)

$1,860,287611,2991,231,361$17,627$1,146,488364,296416,804365,388

$1,146,488364,296574,790$207,402

Dialysis Clinic, Inc.Summary of profitability:

HDPDR.C.C. CostingRevenueDirect CostsIndirect Costs Net Income$1,860,287611,2991,117,463$131,525$1,146,488364,296688,68893,504

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