Lecture 10

Activity-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
revenues
self-administered, in-
home treatment

Daily treatment

62 patients

$1.1 million in
revenues
Dialysis Clinic, Inc.
Cost
Category
Total
Cost
Alloc-
ation
Base
Units of Allocation
Base
HD PD Total
Summary of Costs and Identification
of Cost Drivers:
Standard
Supplies
$664,900

Not applicable:
these are direct costs
Episodic
Supplies
$310,695
Dialysis Clinic, Inc.
Cost
Pool
Total
Cost
Allocation
Base
Units of Allocation
Base
HD PD Total
Summary of Costs and Identification
of Cost Drivers:
Nursing
RNs
LPNs
Admin.
Tech.s

Total

$239,120
404,064
115,168
124,928

$883,280

RN FTEs
LPN FTEs
treatments
dialyzer
treatments

5
15
14,343
14,343

2
4
20,624
0

7
19
34,967
14,343
Nursing
RNs
LPNs
Admin.
Tech.s

Total

$239,120
404,064
115,168
124,928

$883,280

RN FTEs
LPN FTEs
treatments
dialyzer
treatments

5
15
14,343
14,343

2
4
20,624
0

7
19
34,967
14,343
Dialysis Clinic, Inc.
Cost
Pool
Total
Cost
Alloca-
tion
Base
Units of Allocation
Base
HD PD Total
Summary of Costs and Identification
of Cost Drivers:
General
facility
Admin
Records
Utilities

Total

$233,226
354,682
157,219
40,698

$785,825

Sq ft
patients
treatmts
Kilowatts

18,900
102
14,343
563,295

11,100
62
20,624
99,405

30,000
164
34,967
662,700
Dialysis Clinic, Inc.
Cost
Pool
Total
Cost
Alloc-
ation
Base
Units of Allocation Base
HD PD Total
Summary of Costs and Identification
of Cost Drivers:
Dur-
able
equip-
ment
137,046 Nursing
Svc
Cost
$661,966 $221,314 $883,280
Dialysis Clinic, Inc.
Calculation of Overhead Rates:
Cost Pool Total cost Total
Units of
Allocation
Base
Overhead Rate
Nursing
RNs
LPNs
Admin
Technicians
Total

$239,120
404,064
115,168
124,928
$883,280

7
19
34,967
14,343

$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 Pool Total cost Total
Units of
Allocation
Base
Overhead Rate
General
Facility
Admin
Records
Utilities
Total

$233,226
354,682
157,219
40,698
$785,825

30,000
164
34,967
662,700

$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 Pool Total cost Total
Units of
Allocation
Base
Overhead Rate
Durable
equipment
$137,046 $883,280 $0.15516 per
nursing service
dollar
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost
Category
O/H
Rate
HD
Units
HD
Cost
PD
Units
PD
Cost
Standard
supplies

Episodic
Supplies
Direct
cost

Direct
cost

$512,619

98,680

$152,281

$212,015
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost
Pool
O/H
Rate
HD
Units
HD
Cost
PD
Units
PD
Cost
Nursing
RNs
LPNs
Admin
Tech.s
Total

34,160
21,267
3.29
8.71


5 FTEs
15 FTEs
14,343*
14,343*


* treatments

$170,800
318,998
47,240
124,928
$661,966

2
4
20,624
0

$68,320
85,066
67,928
0
221,314
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost
Pool
O/H
Rate
HD
Units
HD
Cost
PD
Units
PD
Cost
general
facility
admin
records
utilities
Total


7.774
2,164
4.496
.0614

18,900 sq ft
102 patient
14,343
563,295

$146,933
220,595
64,489
34,593
$466,610

11,100
62
20,624
99,405

$86,293
134,087
92,730
6,105
319,215
Dialysis Clinic, Inc.
Allocation of Costs using A.B.C.:
Cost
Pool
O/H
Rate
HD
Units
HD
Cost
PD
Units
PD
Cost
durable
equip-
ment
$.15516
per
nursing
dollar
661,966 $102,785

221,314 $34,261
Dialysis Clinic, Inc.
Summary of Costs:
Cost Category HD PD
Standard Supplies
Episodic Supplies
Nursing Services
General Overhead
Durable equipment
Total
$512,619
98,680
661,966
466,610
102,785
$1,842,660
$152,281
212,015
221,314
319,215
34,261
$939,086
Dialysis Clinic, Inc.
Summary of profitability:
HD PD
Traditional Costing
Revenue
Direct Costs
Indirect Costs
Net Income
Activity-Based Costing
Revenue
Direct Costs
Indirect Costs
Net Income

$1,860,287
611,299
1,389,347
($140,359)

$1,860,287
611,299
1,231,361
$17,627


$1,146,488
364,296
416,804
365,388

$1,146,488
364,296
574,790
$207,402
Dialysis Clinic, Inc.
Summary of profitability:
HD PD
R.C.C. Costing
Revenue
Direct Costs
Indirect Costs
Net Income

$1,860,287
611,299
1,117,463
$131,525


$1,146,488
364,296
688,688
93,504