ACCT 6260: Denver Medical Case


ACCT 6260

Denver Medical Case 

To get your Assignment/Homework solutions;

Simply Click ORDER NOW and your paper details. Our support team will review the assignment(s) and assign the right expert whose specialization is same to yours to complete it within your deadline. Our Editor(s) will then review the completed paper (to ensure that it is answered accordingly) before we email you a complete paper 

Email Us for help in writing this paper for you at: support@customwritings-us.com

 

Part 1

Denver Medical is a nonprofit health care provider in the Denver, Colorado area.  One part of its operations is South Metro Dialysis Clinic, (SMD), a full-service renal dialysis clinic.  The clinic provides two types of treatments.  Hemodialysis (HD) requires patients to visit a dialysis clinic three times a week, where they are connected to special, expensive equipment to perform the dialysis.  Peritoneal dialysis (PD) allows patients to administer their own treatment daily at home.  The clinic monitors PD patients and assists them in ordering supplies consumed during the home treatment.  Revenue related data for the clinic is in Exhibit 1.

 

Exhibit 1                                                                     Total                HD                  PD                  

Revenues

Number of patients                                                    164                  102                     62

Number of treatments                                           34,967              14,343             20,624

            Total revenue                                                  $3,006,775      $1,860,287      $1,146,488     

 

SMD’s total costs consist of two categories: supply costs and service costs. The existing cost system can identify supply costs by type of treatment and in total.  These amounts are in Exhibit 2.

 

Exhibit 2                                                                     Total                HD                  PD      

Supply costs

Standard supplies (drugs, syringes)              $664,900           $512,619         $152,281

Episodic supplies (for special conditions)       310,695               89,680           221,015

            Total supply costs                                          $975,595          $602,299         $373,296

 

For many years, as was the convention in many medical practices, SMD had not tracked other service costs to particular service products.  Rather the service costs, totaling $1,806,151, were allocated to service treatments using the ratio-of-cost-to-charges (RCC) method developed for government cost reimbursement programs.  Under RCC, an allocation rate is calculated by dividing service costs by revenue dollars as the allocation base.  Then service cost is allocated to product/services by applying the allocation rate to the applicable revenue dollars for each product/service.

 

Requirement 1

  1. Compute an overall service cost allocation rate assuming service costs are allocated based on revenue dollars. Note that this is the ratio-of-cost-to-charges or RCC method.

 

  1. Develop product line (treatment) profit/loss statements showing revenue and cost details from above. Calculate the profit margin on sales percentage for each service. Using this data compare the profitability of these treatments.

 

Part 2

For many years, clinics such as SMD received much of their reimbursement based on reported costs.  Starting in the 1980s, however, payment mechanisms increasingly shifted to where now SMD now received most of its reimbursement on the basis of a fixed fee per patient, not related to the cost of treatment provided.  Moreover, because HD and PD procedures were categorized by the government as a single category—dialysis treatment—the weekly reimbursement for each patient was the same:  $389.10.  As a consequence, the three HD treatments per week led to a reported revenue per HD treatment of $129.70, and the seven PD treatments per week led to a reported revenue per PD treatment of $55.59.

 

Management was concerned that costs under the RCC method did not reasonably reflect the actual cost of these different treatments.  Management was also now confronting important decisions about contracting to extend and/or expand their services and change the mix of services provided.  They also wanted to consider where process improvements and cost reductions could be made.

 

In response, the controller at SMD attempted to implement a more refined costing system.  She first decomposed total service costs into two categories:

 

Nursing services                                                          $   883,280

General (occupancy and administration costs)                922,871

$1,806,151

 

Based on HR records and further analysis, nursing services costs were actually comprised of

Registered nurses (RN’s)                                            $  239,120

Licensed practical nurses (LPN’s)                                   404,064

Nursing administration and other staff                           240,096

Total                                                                            $  883,280

 

Nurses, in collaboration with their administrators, were asked to estimate what percentage of their time was spent on HD versus PD treatments.  Based on these percentages, total nursing hours could be decomposed as shown below.  Using the nursing hours data, RN and LPN costs could be traced (assigned) to HD and PD service for costing purposes.

 

                                    Total hours                  HD hours                    PD hours                    

RN’s                            14,000                         10,000                         4,000

LPN’s                          38,000                         30,000                         8,000                          

 

The controller also thought that nursing administration and other staff costs should be treated as an indirect (overhead) cost pool and allocated to treatments (HD and PD) based on total nursing hours.

 

 

 

Further analysis of the general overhead costs revealed that these costs were comprised of two parts:

 

Clinic facilities (rent, depreciation, utilities)               $410,971

Clinic administration and other support                                   511,900

$922,871

 

After some thought the controller concluded that the clinic facilities overhead could be allocated based on square feet of space used (22,500 feet for HD and 7,500 feet for PD) and clinic administration and support overhead could be allocated based on the total nursing hours (see data above).

 

Requirement 2

  1. Calculate hourly labor rates for nursing services costs and assign (trace) nursing services (labor) to the two treatment services, HD and PD.

 

  1. Compute the indirect (overhead) cost allocation rates for 1) nursing administration and other staff overhead, 2) clinic facilities overhead, and 3) clinic administration and other support overhead. Calculate the total costs for these three costs for HD and PD treatment services.

 

  1. Develop product line (HD and PD treatment services) profit/loss statements showing revenue and cost details. Calculate the profit margin on sales percentage for each service.

 

  1. Analyze your new product line (treatment services) profit/loss and assess its implication of SMD’s managers.

 

  1. Consider what decisions managers might make with this new information and how the decisions made might differ from those derived using the RCC method in Requirement 1 above.

 

 

To get your Assignment/Homework solutions;

Simply Click ORDER NOW and your paper details. Our support team will review the assignment(s) and assign the right expert whose specialization is same to yours to complete it within your deadline. Our Editor(s) will then review the completed paper (to ensure that it is answered accordingly) before we email you a complete paper 

Email Us for help in writing this paper for you at: support@customwritings-us.com

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: