A dialysis clinic provides two types of treatment for its patlents. Hemodialysis (HD), an In-house treatment, requires that patlents visit the clinic three times each week for dialysis treatments. Peritoneal dialysis (PD) permits patlents to selfadminister their treatments at home on a dally basis. On average, the clinic serves 102HD patlents and 62PD patients. A recent development caused clinic administrators to develop a keen Interest In cost measurement for the two separate services. Managed care plans such as HMOs began to pay treatment providers a fixed payment per Insured participant regardless of the level of services provided by the clinic. With fixed fee revenues, the clinic was forced to control costs to ensure profitability. As a result, knowng the cost to provide HD versus PD services was crltically important for the clinic. It needed accurate cost measurements to answer the following questions. Were both services profitable, or was one service carrylng the burden of the other service? Should advertising be directed toward acquirling HD or PD patlents? Should the clinic eliminate HMO service? Management suspected the existing cost allocation system was Inaccurate in measuring the true cost of providing the respectlve services; it had been developed in response to Medicare reporting requirements. It allocated costs between HD and PD based on the ratio of cost to charges (RCC). In other words, RCC allocates indirect costs In proportion to revenues. To Illustrate, consider the allocation of $883,400 of Indirect nursing services costs, which are allocated to the two treatment groups in relation to the revenue generated by each group. Glven that the clinic generated total revenue of $3,008,330, an allocation rate of 0.2936513 per revenue dollar was established ($883,400$3,008,330). This rate was multiplied by the proportionate share of revenue generated by each service category to produce the following allocation. To better assess the cost of providing each type of service, the clinic initlated an activity-based costing (ABC) system. The ABC approach dided the nursing service cost into four separate cost pools. A separate cost driver (allocatlon base) was Identified for each cost pool. The cost pools and thelr respective cost drtvers follow. Required a. Calculate the allocated costs for the followng tasks: (Do not round intermedlate calculations. Round your final answers to the nearest whole dollar amount.) (1) Allocate the RN cost pool between the HD and PD service centers. (2) Allocate the LPN cost pool between the HD and PD service centers. (3) Allocate the nursing administration and support staff cost pool between the HD and PD service centers. (4) Allocate the dialysis machine operations cost pool between the HD and PD service centers. multiplied by the proportionate share of revenue generated by each service category to produce the following allocation. To better assess the cost of providing each type of service, the clinic inltiated an activity-based costing (ABC) system. The ABC approach didided the nursing service cost into four separate cost pools. A separate cost driver (allocation base) was identfied for each cost pool. The cost pools and their respective cost drivers follow. TC 5-2 (Algo) Part b Determine the total cost to allocate to the two service centers. (Do not round intermediate calculations. Round your final answers the nearest whole dollar amount.)
