Western Dialysis Clinic

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