Western Dialysis Clinic

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Advanced Management Accounting, R. S. Kaplan, A. A. Atkinson, International Edition, Third Edition, Prentice Hall International, Inc, 1998

p. 116.

Answer all four requirements of the case study. In addition to these requirements you are recommended to exhibit your ability to:
1) Critically evaluate the advantages and drawbacks of traditional costing systems. 2) Compare activity-based costing systems to traditional costing systems. 3) Analyze the circumstances and provide arguments with solid numbered reasoning to support appropriateness of any of the two systems.

4) Foresee and critically assess the implications of moving from one system to another. Table 1
Clinic income statement Total HD PD
Revenues
Number of patients 164 102 62 Number of treatments 34 967 14 343 20 624 Total revenue $3 006 775,0$1 860 287,0$1 146 488,0

Supply costs
Standard supplies (drugs, syringes) 664 900 512 619 152 281 Episodic supplies (for special conditions) 310 695 98 680 212 015 Total supply costs 975 595 611 299 364 296 Service costs

General overhead (occupancy, administration) 785 825 466 610 319 215 Facility costs (rent,depreciation) 233 226 146 932 86 294 Administration and support staff 354 682 220 595 134 087 Communications systems and medical records 157 219 64 489 92 730 Utilities 40 698 34 593 6 105 Durable equipment (maintenance, depreciation) 137 046 116 489 20 557 Nursing services (RNs,LPNs, nursing administrators, equipment technicians) 883 280 750 788 132 492

Total service costs 1 806 151 1 333 887 472 264 Total operating expenses $2 781 746,0$1 945 185,8$836 560,2 Net income $225 029,0-$84 898,8$309 927,8

Treatment Level Profit
Average charge per treatment $129,70 $55,59
Average cost per treatment 135,62 40,56 Profit per treatment -$5,92 $15,03

Table 2
Profit per treatment
HD PD
RCC System $9,17$4,53
ABC System -$5,92$15,03
% Change -164,55%231,46%

As we can see from Table 1, where we allocated general overhead resources to four resource cost pools, profit per treatment for HD became a loss of -$5.92, while profit for PD treatment increased from $4.53 to $15.03. The major reason of having loss for HD is a high value of estimated kilowatt usage, 85% (563,295 kW) of total (662,700 kW) kilowatt usage.

Case Requirement 2

Table 3
Clinic income statement Total HD PD
Revenues
Number of patients 164 102 62 Number of treatments 34 967 14 343 20 624 Total revenue $3 006 775,0$1 860 287,0$1 146 488,0

Supply costs
Standard supplies (drugs, syringes) 664 900 512 619 152 281 Episodic supplies (for special conditions) 310 695 98 680 212 015 Total supply costs 975 595 611 299 364 296

Service costs
General overhead (occupancy, administration) 785 825 466 610 319 215 Facility costs (rent,depreciation) 233 226 146 932 86 294 Administration and support staff 354 682 220 595 134 087 Communications systems and medical records 157 219 64 489 92 730 Utilities 40 698 34...
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