Please help me with this, I do not know how to start it, it is not a writing assignment. I do not plan to take your work and turn it in as my own. I just need some help.

PROJECT 1 | ABC and HEALTHCARE WESTERN DIALYSIS CLINIC CASE Western Dialysis Clinic is an independent, nonprot full-service renal dialysis clinic. The clinic provides two types of dialysis treatments. Hemodialysis (HD) requires patients to visit the 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. The existing cost system assigned the traceable supply costs directly to the two dialysis treatments. The total service costs, however, were not analyzed by type of treatment. The total service costs of $1 ,800.000 were allocated to the treatments using the traditional ratioof- oost-tocharges (RCC) method developed for government cost-based reimbursement programs. With this procedure, since HD treatments represented about 60% of total revenues, HD received an allocation of 60% of the service costs ($1.080,000) and PD received an allocation of 40% of service costs ($720,000). For many years clinics such as Western Dialysis received much of their reimbursement on the basis of reported costs. In recent years, however, payment mechanisms shifted, and Western Dialysis now received most of its reimbursement on the basis of a xed fee, not the cost of the service provided, In particular, because HD and PD procedures were categorized by the government as a single categorydialysis treatrnentthe weekly reimbursement for each patient was the same: $390.00, As a consequence, the three HD treatments per week led to a reported revenue per HD treatment of $130, and the seven PD treatments per week led to a reported revenue per PD treatment of $55.71. According to the clinic's existing cost and revenue recognition system, both procedures appeared to be protable (See Table 1 below). TABLE 1: Cost and Protability Estimates TOTALS HD PD Supply Costs (Direct) 5 975,000 3 675,000 $300,000 Service Costs (Indirect) 4,300,000 4,080,000 m Total Costs $2,775,000 $1,755,000 $1,020,000 Number of Treatments 35,000 1 5.000 JOAN Average Cost Per Treatment $117100 $51.00 Revenue Per Treatment $130.00 $55.71 Average Cost Per Treatment LL00 _5_1_00 Average Prot Per Treatment $13.00 $4.71 Average Prot % Per Treatment 10.00% 8.45% David Thomas. the controller of Western Dialysis was concerned. however, that the procedures currently being used to assign common expenses may not be representative of the undeying use of the common resources by the two different procedures. He wanted to understand their costs better so that Western's managers could make more-informed decisions about extending or contracting products and services and about where to look for process improvements. Thomas decided to explore whether activity-based costing principles could provide a better indication of the undertying cost and protability of HD and PD treatments In his initial analysis, Thomas decided to focus on me indirect service costs since they represented such a large proportion oi the total cost. After some analysis. he was able to split the indirect service costs cf$1,800,000 into three cost categories: Equipment Costs ($140,000), Nursing Services ($860,000) and General Overhead ($800,000). But rather than continue to use the RCC method tor allocating Equipment Costs and Nursing Services, he asked the clinic staff for theirjudgments about how these costs should be assigned. 0n the basis of the staff's experience and judgment. they felt that HD treatments used about 85% of these resources, and PD about 15%. Thus, he felt comfortable tracing the Equipment Costs and Nursing Services directly to the HD and PD treatments as direct costs. His new estimate of direct costs signicantly shrunk the pcrportion of indirect costs (See Table 2 below) TABLE 2: New Estimate of Direct Costs TOTALS HD PD Supply Cos 5 975,000 $ 675,000 $300,000 Equipment Costs 140,000 119,000 21,000 Nursing Services Jm M 423,000 Total Direct Costs $1,975,000 $1,525,000 $450,000 Next, Thomas split the remaining General Overhead costs into four cost pools with tour cost drivers (See Table 3 below): TABLE 3: New Overhead Cost Pools and Cost Drivers EST. COST OVERHEAD COST POOL SIZE COST DRIVER DRIVER UNITS Facility Costs $250,000 Sq Ft of Space 25,000 Sq Ft Administration and Support 350,000 No. of Patients 200 Patients Systems and Medical Records 140,000 No. of Treatments 35,000 Tmts Utilities Janna Est KW Hours 600,000 Hrs TOTAL $800,000 Finally, Thomas identied the consumption of the cost drivers by each of the two products for the past year (See Table 4 below). TABLE 4: Consumption of Overhead cost Drivers TOTALS HD PD Sq Ft ct Space 25,000 15,000 10,000 No. of Patienw 200 120 80 No. of Treatments 35,000 15,000 20,000 Est KW Hours 600,000 500,000 100,000 Prolect I Page 2 REQUIREMENTS: Write a two- to three-page professional business memo to answer the questions below. RESOURCES: This guide, provided by Professor Bauer-Ramazani at St. Michael's College, is a succinct, comprehensive resource to business memos: http://academics.smcvt.edu/cbauer- ramazani/BU113/memo_guide_citations.htm. QUESTIONS: 1. Was David Thomas justified in suspecting that the existing costing system was not accurate? What characteristics of the HD and PD treatments justify the use of a more detailed costing system? Why do you think Western Dialysis had not developed a more detailed costing system previously? 2. Prepare a new version of Table 1 (cost and profitability estimates) using the new activity- based costing system. 3. How could the new ABC costing system improve decision-making at Western Dialysis? What new decisions might Western Dialysis make as a result of their new costing system? . Think about the nursing services required for the HD and PD treatments. How could Thomas make the new ABC costing system even more accurate? Project 1 Page 3