Step 1. You are the CFO of DCI. You have been working with your team to determine the financial impact of possibly closing a branch, Dialysis Care of Tilden City (DCTC), on DCI (the parent). Your...

DCI_Instructions
        Dialysis Care, Inc. - Differential Cost Accounting
        Instructions
        Step 1. You are the CFO of DCI. You have been working with your team to determine the financial impact of possibly closing a
anch, Dialysis Care of Tilden City (DCTC), on DCI (the parent). Your sharpest team of analysts has created a financial model (below) to predict this impact.
        Step 2. Before proceeding, please study the model below to make sure you are familiar with both its form and content. At the macrolevel, make sure you understand how the various boxes (assumption, calculations, and tables) relate to each other. At the microlevel: 1) Make sure in the calculations table you understand where the numbers in each cell come from, and 2) Make sure in the assumptions and table boxes where the numbers are used. To help you do this, use the Formula auditing tool under "Formulas" and click on "trace precedents" and/or "trace dependents".
        Step 3. You are giving a presentation to DCI's Board in the morning. In preparing for this presentation you are to answer a set of a three expected questions (located on tabs Q1, Q2, and Q3) . To answer these questions, you are to manipulate the original model on the following tabs. For each question, provide your answer or refer to your calculated values as appropriate
        Where we go from here:
        Case Presenters (CFO of DCI) and Respondents (DCI Board Members): After preparing your analysis of financial impact of possibly closing the DCTC
anch, you will record a presentation with your recommendation of rate structure, including both advantages and disadvantages.
Presenters: You are presenting your responses to the three questions and whether you believe the DCTC
anch should be closed. Record a 2-4 minute discussion of your presentation and analysis.
Respondents: You are the asking questions or seeking clarification on points discussed in the CFO's presentation. You can respond with some of your own conclusions and analysis, and you also should pose 2-3 questions in response to the presenter's analysis.
        Financial model to determine financial impact of DCTC on DCI
        Assumptions
        A1. Treatments at capacity            3,824    (Given)    A7. Avoidable Salaries                See Table 4, col. 4E.
        A2. Charges per treatment            $ 230.00    (Given)     A8. Unavoidable Salaries                See Table 4, col. 4F.
        A3. Percent of charges collected            100%    (Assumption)    A9. Number of Employees                See Table 4, col. 4A.
        A4. Variable cost per treatment            $ 70.13    (Table 2, col 2A)    A10. Project life            5    (Assumption)
        A5. Avoid. non-salary operating fixed costs            37,674    (Table 2, col 2B)    A11. Discount Rate            10%    (Assumption)
        A6 Unavoid. non-salary fixed operating costs            $0    (Table 2, col 2C)    A12. Indirect costs allocated from central office.            210,320    (Given)
                            A13. % of A12 which would be saved by DCI if DCTC closed down.            15%    (Given)
        Calculations
        B    C    D    E    F    F'    G    H    I    J    K    L
        Patients    Percent    Treatments    Total     Total     Contribution    Avoidable    Non-Salary    Avoidable    Product    Unavoidable    Net
            Capacity        Revenues    Variable Cost    Margin    Salaries    Direct Cost    Allocated Cost    Margin    Allocated Costs    Income
        [Note 1]    [Note 2]    [A1*C]    [A2*A3*D]    [A4*D]    [E-F]    Note 3    [Note 4]    [A12*A13]    [D-E-F-G-H-I]    [A12-I]    [J-K]
        24    100%    3,824    879,520    268,174    611,346    436,800    37,674    31,548    105,324    178,772    (73,448)
        23    95%    3,633    835,544    254,765    580,779    436,800    37,674    31,548    74,757    178,772    (104,015)
        22    90%    3,442    791,568    241,357    550,211    436,800    37,674    31,548    44,189    178,772    (134,583)
        20    85%    3,250    747,592    227,948    519,644    436,800    37,674    31,548    13,622    178,772    (165,150)
        19    80%    3,059    703,616    214,539    489,077    436,800    37,674    31,548    (16,945)    178,772    (195,717)
        18    75%    2,868    659,640    201,131    458,510    436,800    37,674    31,548    (47,513)    178,772    (226,285)
        17    70%    2,677    615,664    187,722    427,942    436,800    37,674    31,548    (78,080)    178,772    (256,852)
        15    65%    2,486    571,688    174,313    397,375    311,200    37,674    31,548    16,953    178,772    (161,819)
        14    60%    2,294    527,712    160,904    366,808    311,200    37,674    31,548    (13,614)    178,772    (192,386)
        13    55%    2,103    483,736    147,496    336,240    311,200    37,674    31,548    (44,182)    178,772    (222,954)
        12    50%    1,912    439,760    134,087    305,673    311,200    37,674    31,548    (74,749)    178,772    (253,521)
        11    45%    1,721    395,784    120,678    275,106    311,200    37,674    31,548    (105,316)    178,772    (284,088)
        9    40%    1,530    351,808    107,270    244,538    311,200    37,674    31,548    (135,884)    178,772    (314,656)
        8    35%    1,338    307,832    93,861    213,971    185,600    37,674    31,548    (40,851)    178,772    (219,623)
        7    30%    1,147    263,856    80,452    183,404    185,600    37,674    31,548    (71,418)    178,772    (250,190)
        6    25%    956    219,880    67,044    152,837    185,600    37,674    31,548    (101,986)    178,772    (280,758)
        4    20%    765    175,904    53,635    122,269    185,600    37,674    31,548    (132,553)    178,772    (311,325)
        3    15%    574    131,928    40,226    91,702    185,600    37,674    31,548    (163,120)    178,772    (341,892)
        2    10%    382    87,952    26,817    61,135    185,600    37,674    31,548    (193,687)    178,772    (372,459)
        1    5%    191    43,976    13,409    30,567    185,600    37,674    31,548    (224,255)    178,772    (403,027)
        0    0%    0    0    0    0    185,600    37,674    31,548    (254,822)    178,772    (433,594)
        Note 1. Approximate number of FT patients based on 3 treatments per week, 52 weeks per year. Formula = Trunc( D/(3 *52).
        Note 2. Selected percentages at which DCTC might operate.
        Note 3. From Table 4.
        Note 4. Avoidable non-salary fixed costs from Table 2, col 2B.
        Table 2. Assumed Classification of Non-Salary Direct Cost                     Table 4. Classification of Salaries by Capacity Level and Avoidability
                2A    2B    2C            Number1        Cost1
                Variable    Avoidable    Unavoidable        > 70% Capacity
                Costs    Fixed Costs    Fixed Costs             4 A    4 B    4 C    4 D
        Medical supplies        $245,488                    Total    Avoidable    Per Employee    Total
        Lab services        12,238                    (Given)    (Assumed)    (Table 3, Col. 3D)    (4 A * 4 C)
        Salaries & wages        (See table 4.)                Nurses    6    100%    40,833    $ 245,000
        Employee Benefits        (See table 4.)                Techs.    3    100%    23,000    $ 69,000            
        Water usage        10,448                Adm.    1    100%    50,000    $ 50,000
        Minor equipment rental            25,678            Benefits1                72,800
         Insurance            11,996            Total                $ 436,800
        Total         $268,174    $37,674            Between 70 and 40 % Capacity
        Volume VC incu
ed        3,824                Nurses    4    100%    40,833    $ 163,333
        VC per treatment        70.13                Techs.    2    100%    23,000    $ 46,000
                                Adm.    1    100%    50,000    $ 50,000
        Table 3. Calculation of Cost Per Employee and Benefit %                        Benefits1                51,867            
        3A    3B    3C    3D            Total                311,200
                    Cost Per             Below 40% Capacity
        No,    Position    Cost    Employee            Nurses    2    100%    40,833    $ 81,667
        {Given]    (Given)    (Given)    [3C / 3A)            Techs.    1    100%    23,000    $ 23,000
        6    Nurses    $ 245,000    $ 40,833            Adm.    1    100%    50,000    $ 50,000
        3    Techs.    $ 69,000    $ 23,000            Benefits1                30,933            
        1    Administrator    $ 50,000    $ 50,000            Total                185,600
            Total Salaries    $ 364,000                1 Benefits are calculated as a percent of salaries. Percentage is calculated in Table 3, col. D as:                        20.00%
            Total Benefits    $ 72,800
            Sal. & Benefits    $ 436,800
        % Benefits (Total Benefits / Total Salaries)            20.00%
&"Helv,Bold"&1DCI Case Analysis&"Helv,Regular"&8
    
DCI_Q1
        Dialysis Care, Inc. - Differential Cost Accounting
        Instructions and Question
        Using the DCTC financial model, answer the follow expected question for the DCI Board meeting. Enter your answer in the yellow cell below.
        Expected Question 1
        1.     If nothing changes from last year and DCTC (the
anch) would continue to operate as per last year, which of the following best describes the facts and the best action DCI (the parent) should take according to the model, all else being equal?
        a.      DCTC will cover its own costs, but not cover its “fair” share of other costs. Thus, DCI should drop DCTC and DCI will be better off financially.
        b.     DCTC will cover its own costs, but not cover its “fair” share of other costs. Thus, DCI should keep DCTC and it will be better off financially.
        c.     ...