Question
DBC, TDABC, and ABC The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two activities use four resources: nursing, medical technicians, cardiologists,
DBC, TDABC, and ABC
The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two activities use four resources: nursing, medical technicians, cardiologists, and equipment. Detailed interviews have provided the following work distribution matrix shown below.
Resources | ||||||
Activity | Nursing | Technicians | Cardiologists | Equipment | Total Activity Time | |
Diagnosing patients | 0.70 | 0.80 | 0.40 | 0.60 | 12,000 | hrs. |
Treating patients | 0.30 | 0.20 | 0.60 | 0.40 | 8,000 | hrs. |
Total time (hrs.) | 4,000 | 4,000 | 6,000 | 6,000 | 20,000 | |
Cost | $80,000 | $80,000 | $320,000 | $320,000 |
The total time estimated corresponds to practical capacity (interviewers adjusted the total time to about 80 percent of the available time). The equipment time is measured in machine hours. Thus, the total time (at practical capacity) in the system is 20,000 hours. In considering the implementation of a TDABC model, the following unit times and transaction information are also provided:
Unit Time | Driver | Expected Activity Driver Quantity | |||
Diagnosing patients | 3 | hrs | No. of patients | 4,000 | |
Treating patients | 0.8 | hr. | No. of treatments | 10,000 |
The clinic has identified three types of patients: those with no heart disease, those with mild heart disease, and those with severe heart disease. The following additional data are provided:
Patient Type | Diagnosing Patients | Treating Patients | Average Time Spent Servicing Each Patient Type (Cycle Time) |
No disease | 2,000 | 0 | 3 hrs. |
Mild disease | 1,500 | 5,000 | 5.6 hrs. |
Severe disease | 500 | 5,000 | 11.0 hrs. |
Activity cost | ? | ? |
Required:
1. Calculate the activity costs for diagnosing and treating patients. Using the activity costs calculated, calculate the unit cost of servicing each type of patient using traditional ABC.
Activity rates | |
Diagnosing | $fill in the blank 1 |
Treating | $fill in the blank 2 |
Calculate the unit cost of servicing each type of patient using traditional ABC.
Unit Cost | |
No Disease | $fill in the blank 3 |
Mild | $fill in the blank 4 |
Severe | $fill in the blank 5 |
2. Using TDABC-derived activity rates, calculate the unit cost of servicing each type of patient. If required round your answer to two decimal places.
Activity rates | |
Diagnosing | $fill in the blank 6 |
Treating | $fill in the blank 7 |
Unit Cost | |
No Disease | $fill in the blank 8 |
Mild | $fill in the blank 9 |
Severe | $fill in the blank 10 |
3. Using DBC, calculate the unit cost of servicing each type of patient. If required round your answer to two decimal places.
Unit Cost | |
No Disease | $fill in the blank 11 per patient |
Mild | $fill in the blank 12 per patient |
Severe | $fill in the blank 13 per patient |
4. Suppose that a medical consultant proposes a new patient-processing system that will shorten diagnostic and treatment times but would require more skilled nurses and technicians as well as an equipment upgrade. However, the total practical capacity would remain the same, at 20,000 hours. Total resource costs are predicted to increase by $100,000. The consultant estimates that the cycle times for each patient type would be reduced from 3 to 2 hours, 5.6 to 4.5 hours, and 11 to 9 hours. The physicians that own the clinic have expressed a willingness to implement the changes, provided that the unit cost of servicing each patient type decreases. Use DBC to estimate the new unit costs. If required round your answer to two decimal places.
Unit Cost | |
No Disease | $fill in the blank 14 per patient |
Mild | $fill in the blank 15 per patient |
Severe | $fill in the blank 16 per patient |
Should the clinic implement the new system?
YesNoYes
Discuss the advantages of DBC for this analysis over ABC and TDABC. Finally, identify the data analytic types (descriptive, diagnostic, predictive, or prescriptive) that apply for this analysis (see Exhibits 2.5 and Exhibits 2.6, for a review of data analytic types). Note: More than one analytic type might apply.
The data analytic types are
descriptivediagnosticpredictiveprescriptiveboth descriptive and diagnosticboth predictive and prescriptiveboth predictive and prescriptive
. The unit costs are what are likely to happen given the estimates. The
increasedecreasedecrease
in unit costs and the
increasedecreaseincrease
in ability to process more patients suggest that the clinic
shouldshould notshould
adopt the new system.
Feedback Area
Feedback
1. First, calculate the total cost of diagnosing and treating patients by multiplying the total cost of each activity by the indicated values of the resource drivers. Divide the total cost by the total number of patients served. Then use those activity rates to allocate costs to each type of patient. Divide by total number of patients served to determine unit cost.
2. Calculate Capacity Cost rate by dividing the total resource cost by the practical capacity of the resources supplied. Calculate Activity Cost by multiplying activity rate by total activity output. Divide by total number of patients served to determine unit cost.
3. Calculate Overhead rate. Multiply overhead rate by cycle times.
4. Calculate Overhead rate. Multiply overhead rate by new cycle times. Refer to Exhibit 2.6 for identifying data analytic types.
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