1. Lecture 10
Activity-Based Costing Example: The Dialysis Clinic

2. 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

3. Dialysis Clinic, Inc.
Summary of Costs and Identification of Cost Drivers:
Cost Category
Total Cost
Alloc-ation Base
Units of Allocation Base HD PD
Total
Standard Supplies
$664,900
Not applicable:
these are direct costs
Episodic Supplies
$310,695

4. Dialysis Clinic, Inc.
Summary of Costs and Identification of Cost Drivers:
Cost Pool
Total Cost
Allocation Base
Units of Allocation Base HD PD
Total
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 2 4
20,624 7 19
34,967
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 2 4
20,624 7 19
34,967

5. Dialysis Clinic, Inc.
Summary of Costs and Identification of Cost Drivers:
Cost Pool
Total Cost
Alloca-tion Base
Units of Allocation Base HD PD
Total
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

6. Dialysis Clinic, Inc.
Summary of Costs and Identification of Cost Drivers:
Cost Pool
Total Cost
Alloc-ation Base
Units of Allocation Base HD PD
Total
Dur-able equip-ment
137,046
Nursing Svc Cost
$661,966
$221,314
$883,280

7. Dialysis Clinic, Inc. Calculation of Overhead Rates: Cost Pool
Total cost
Total Units of AllocationBase
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

8. Dialysis Clinic, Inc. Calculation of Overhead Rates: Cost Pool
Total cost
Total Units of AllocationBase
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
$ per kilowatt

9. Dialysis Clinic, Inc. Calculation of Overhead Rates: Cost Pool
Total cost
Total Units of AllocationBase
Overhead Rate
Durable equipment
$137,046
$883,280
$ per nursing service dollar

10. Dialysis Clinic, Inc. Allocation of Costs using A.B.C.: Cost Category
O/H Rate HD
Units
Cost PD
Standard supplies
Episodic Supplies
Direct cost
$512,619
98,680
$152,281
$212,015

11. Dialysis Clinic, Inc. Allocation of Costs using A.B.C.: Cost Pool
O/H Rate HD
Units
Cost PD
Nursing
RNs
LPNs
Admin
Tech.s
Total
34,160
21,267
3.29
8.71
5 FTEs
15 FTEs
14,343*
* treatments
$170,800
318,998
47,240
124,928
$661,966 2 4
20,624
$68,320
85,066
67,928
221,314

12. Dialysis Clinic, Inc. Allocation of Costs using A.B.C.: Cost Pool
O/H Rate HD
Units
Cost PD
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

13. Dialysis Clinic, Inc. Allocation of Costs using A.B.C.: Cost Pool
O/H Rate HD
Units
Cost PD
durable equip-ment
$ per nursing dollar
661,966
$102,785
221,314
$34,261

14. 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

15. Dialysis Clinic, Inc. Summary of profitability: HD PD
“Traditional” Costing
Revenue
Direct Costs
Indirect Costs
Net Income
Activity-Based Costing
$1,860,287
611,299
1,389,347
($140,359)
1,231,361
$17,627
$1,146,488
364,296
416,804
365,388
574,790
$207,402

16. 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