3. Use the accompanying Excel spreadsheet to calculate the costs and profit margins of the three different office visits using i) the RCC method and ii) TDABC (Time-Driven Activity Based Costing) method. Report the costs and profits in a small table. What explains the difference in costs and profits using the two methods.

**How to find calculations

Use the accompanying Excel worksheet to calculate the costs and margins of the three different office visits using:

1. RCC method

The Ratio-of-Cost-to-Charges Method calculates cost from the equation below:

Actual Charge x RCC Ratio = RCC Cost

The margin is then calculated using the following:

Average Reimbursement -RCC Cost = RCC Margin

The results of these calculations are summarized below for each procedure.

Medical Diagnosis Cost per patient visit	Actual Charge	RCC Ratio	RCC Cost	Average reimbursement	RCC Margin
						Plagiocephaly	$ 350	60%	$ 210	224.00	$ 14.00
Neoplasm skin excision	$ 350	60%	$ 210	224.00	$ 14.00
Craniosynostosis	$ 350	60%	$ 210	224.00	$ 14.00

2. TDABC method

Time-Driven Activity-Based Costing calculates costs based on the amount of time is spent by each person involved in a procedure. First, a capacity cost rate is determined by dividing the total annual cost of a person by the number of available minutes annually.

Capacity per cost rate ($ minute)	Surgeon	ASR	RN	CA
	$ 6.00	$ 1.00	$ 1.50	$ 0.80

Next, the number of minutes spent on each diagnosis is multiplied by the determined rates to produce the following charges:

Medical Diagnosis Cost per patient visit	Personnel Charges				TDABC Cost
	Surgeon	ASR	RN	CA
Plagiocephaly	$ 108.00	$ 8.00	$ 34.50	$ 4.00	$ 154.50
Neoplasm skin excision	$ 132.00	$ 55.50	$ 30.00	$ 4.00	$ 221.50
Craniosynostosis	$ 240.00	$ 10.50	$ 34.50	$ 8.00	$ 293.00

The margin is calculated by subtracting the TDABC amount from the reimbursement amount.

Medical Diagnosis Cost per patient visit	Actual Charge	Average reimbursement	TDABC Method
			TDABC Cost	TDABC Margin
					Plagiocephaly	$ 350	224.00	$ 154.50	$ 69.50
Neoplasm skin excision	$ 350	224.00	$ 221.50	$ 2.50
Craniosynostosis	$ 350	224.00	$ 293.00	$ (69.00)

For more detailed analysis, refer to the excel document titled Appendix i - BCH Cost Analysis, DPOS Assignment Worksheet.

**Use this excel to complete the calculations :)

DPOS Assignment Worksheet Surgeon ASR 52 RN CA 52 52 52 Resource Weeks per year Less: Vacation & Holidays Less: Training and Leave Available weeks per year Hours per day Less: Breaks, training, meetings Available hours Less: Estimate of Research & Education time (%) Clinical Hours per day Cllinical minutes available per day Clinical minutes available per year 1.2 8.8 6.5 6.5 1.5 6.5 0% 6.5 0% 25% 6.6 0% 6.5 6.5 $ 522,720 $ 89,700 $ 134,550 $ 71,760 Annual Cost per person Capacity cost rate ($ per minute) Personnel process times (minutes) Plagiocephaly Neoplasm skin excision Craniosynostosis 18 22 23 20 55.5 10.5 40 23 Average reimbursement Surgeon ASR RN CA Total cost RCC Profit Medical Diagnosis Cost per patient visit Plagiocephaly Neoplasm skin excision Craniosynostosis - - - Charge $ 350 $ 350 $ 350 $ - Plastic Surgery Dept. Charges Costs Reimbursement RCC: Ratio of costs-to-charges Average DPOS reimbursement rate 12,449,500 7,469,700 7,967,680 64% Capacity Question Surgeon ASR RN 18 Plagiocephaly Neoplasm skin excision Craniosynostosis 8 56 Annual Quantity 4,400 2,200 1,800 22 2 2 Number of personnel Minutes demanded Minutes supplied Unused capacity (minutes) Cost of unused capacity Percent capacity utilization DPOS Assignment Worksheet Surgeon ASR 52 RN CA 52 52 52 Resource Weeks per year Less: Vacation & Holidays Less: Training and Leave Available weeks per year Hours per day Less: Breaks, training, meetings Available hours Less: Estimate of Research & Education time (%) Clinical Hours per day Cllinical minutes available per day Clinical minutes available per year 1.2 8.8 6.5 6.5 1.5 6.5 0% 6.5 0% 25% 6.6 0% 6.5 6.5 $ 522,720 $ 89,700 $ 134,550 $ 71,760 Annual Cost per person Capacity cost rate ($ per minute) Personnel process times (minutes) Plagiocephaly Neoplasm skin excision Craniosynostosis 18 22 23 20 55.5 10.5 40 23 Average reimbursement Surgeon ASR RN CA Total cost RCC Profit Medical Diagnosis Cost per patient visit Plagiocephaly Neoplasm skin excision Craniosynostosis - - - Charge $ 350 $ 350 $ 350 $ - Plastic Surgery Dept. Charges Costs Reimbursement RCC: Ratio of costs-to-charges Average DPOS reimbursement rate 12,449,500 7,469,700 7,967,680 64% Capacity Question Surgeon ASR RN 18 Plagiocephaly Neoplasm skin excision Craniosynostosis 8 56 Annual Quantity 4,400 2,200 1,800 22 2 2 Number of personnel Minutes demanded Minutes supplied Unused capacity (minutes) Cost of unused capacity Percent capacity utilization