Western Dialysis
Executive Summary
Western Dialysis Clinic is an independent, non-profit full service rental dialysis clinic. The clinic currently provides two types of treatments, which include Hemodialysis (HD) and Peritoneal (PD).
The existing system used by Western Dialysis Clinic is the traditional ratio-of cost-to-charges (RCC) method. Under this system the traceable supply costs are assigned directly to the two types of treatment. And also currently both the treatments seem profitable. Due to this David Thomas, the controller of Western Dialysis has recognized two major issues: First, the procedure currently being used to assign common expenses may not be correctly presenting the underlying use of the common resources by two different procedures. Secondly, David has also recognized the need for process improvement in order to obtain a better understanding of the costs, to make better decisions about the profitability of the two procedures, HD and PD at Western Dialysis.
To facilitate the analysis of these issues and to come up with recommendations David has decided to explore the idea of implementing ABC principles to obtain a better idea regarding the profitability. This will consist of analyzing two phases under ABC: in Phase I, the focus will be on the General Overhead category, under which this category will be decomposed into different resource cost pools and cost drivers to better represent the use by two treatments. In Phase II the nursing service category along with the general overhead category (as in Phase I), will be disaggregated into its respective resource pools and cost drivers. Based on this analysis it will be decided which treatment can be regarded profitable and if unprofitable what steps should be taken to reduce the various costs associated or whether it will be beneficial for the clinic to discontinue the treatment.
Introduction
This report will analyze and discuss the impact of implementing activity based costing principle over the
Western Dialysis Clinic is an independent, non-profit full service rental dialysis clinic. The clinic currently provides two types of treatments, which include Hemodialysis (HD) and Peritoneal (PD).
The existing system used by Western Dialysis Clinic is the traditional ratio-of cost-to-charges (RCC) method. Under this system the traceable supply costs are assigned directly to the two types of treatment. And also currently both the treatments seem profitable. Due to this David Thomas, the controller of Western Dialysis has recognized two major issues: First, the procedure currently being used to assign common expenses may not be correctly presenting the underlying use of the common resources by two different procedures. Secondly, David has also recognized the need for process improvement in order to obtain a better understanding of the costs, to make better decisions about the profitability of the two procedures, HD and PD at Western Dialysis.
To facilitate the analysis of these issues and to come up with recommendations David has decided to explore the idea of implementing ABC principles to obtain a better idea regarding the profitability. This will consist of analyzing two phases under ABC: in Phase I, the focus will be on the General Overhead category, under which this category will be decomposed into different resource cost pools and cost drivers to better represent the use by two treatments. In Phase II the nursing service category along with the general overhead category (as in Phase I), will be disaggregated into its respective resource pools and cost drivers. Based on this analysis it will be decided which treatment can be regarded profitable and if unprofitable what steps should be taken to reduce the various costs associated or whether it will be beneficial for the clinic to discontinue the treatment.
Introduction
This report will analyze and discuss the impact of implementing activity based costing principle over the