The Strengths and Limitations of Westmount current costing theoretical account are:

1.1 Strengths

The act of apportioning monetary values at Westmount to occupants and patient is just to some extent as the entire cost of running the retirement abode is divided by the entire floor country or room size. The consequence being the base cost which is the monetary value for a studio plus 5 per cent to account for rising prices in the approaching twelvemonth. The cost of a studio plus the multiplier of 25 and 50 per cent are the costs of One-bed room and Two-bed room suites severally. Therefore, the more epicurean a occupant wants to populate the more sums he/she wages, which is a really good manner of apportioning monetary value to suite installations.

The civilization of departmental accounting adopted by Westmount is a good costing theoretical account, for accounting intents, which allow sections to set about the computation of their ain outgos. The costs that are straight traceable to a peculiar section are accounted for under such sections, this besides allow Westmount to find which of the sections incur more of the retirement abode outgos.

The current costing system of Westmount retirement abode is driven by competition, in other words Westmount monetary values is comparatively low looking at monetary value of other abode houses in the industry. The monetary value of the current costing system at Westmount encourages patients/customers to do their ways to Westmount retirement abode populating the other options. The cost of a studio flat at Westmount is about $ 1,245.14, which is far sensible as compared to the other retirement place considered its rivals. The same goes for the One-bedroom and Two-bedroom flat monetary values. This system though non profitable has placed Westmount in a more competitory signifier among others.

1.2 Restrictions

Though, as discussed above, the current costing theoretical account of Westmount retirement abode has some strengths/advantages, the current costing theoretical account besides has some limitations/pitfalls which are discussed below:

Westmount current costing theoretical account has a job of monetary value distinction to the assorted patients. The current costing theoretical account is apportioning monetary values to patient base on room size, non taking into consideration the assorted demands of the occupants. As in the instance ‘however, room size and a level rate entirely should n’t drive the pricing system ‘ there are about three groups of occupants in Westmount, they are: 1 ) those with no medical demands, 2 ) those with moderate medical demands and 3 ) those with intense medical demands. Westmount has failed to see the varying demands of its occupants utilizing the current costing theoretical account which in the long-run will militate against its net income devising ability. Ideally these costs should be segregated among patients base on their demands.

The evenly allotment of operating expenses by Westmount under the current costing theoretical account is practically unacceptable so to talk. This is so because Westmount cognizing excessively good that the sections are non equal in square footage, hence, apportioning operating expenses every bit among these section makes the current cost theoretical account to be inappropriate. In apportioning operating expenses, it would hold been appropriate if Westmount would hold done it based on the square footage of the sections or based on the proportion of their entire outgos.

The current costing theoretical account used by Westmount has no system in topographic point to account for the varying services of the organisation. Westmount retirement abode has the undermentioned services to offer to its patients/residents such as: 1 ) Nursing and 2 ) Dietician services. The current costing theoretical account of Westmount does non account for these services. ” Certain patients with serious medical conditions such as diabetes rely upon these services rather to a great extent: nevertheless, other occupants ne’er utilized the services ” . If these costs are decently accounted for under the present costing theoretical account, they can be appropriated to those who make usage of/utilized them and be included in their fees.

Explain Westmount ‘s hapless consequences in 2005

2.1 Why hapless consequences in 2005 for Westmount?

The chief ground for Westmount ‘s hapless consequences in 2005 was because of the current costing theoretical account particularly when used in allotment of cost and Price distinction to changing patients and/or occupants. Westmount allocated monetary values to resident base on room size or square footage. In Roswell ‘s decision, she said that “ room size and level rate entirely should n’t drive the pricing system. As different occupants require different degree of attention, costing, and hence pricing must reflect that ” . Since Westmount has three groups of occupants apportioning pricing to occupants establish on floor country entirely this will probably ensue to hapless fiscal public presentation. This is because a patient in the studio with the least monetary value will stop up using most of the services than those who occupy the One-bedroom and Two-bedroom suites with highest monetary values, which I believe must hold happened.

Like in the instance of Chelsea park retirement community, patient with intense medical demands could buy nursing and medical support at an extra cost, at long-worth retirement small town every bit good “ For seniors who preferred more independent populating a alleged a La carte purchase option available for comfortss. Besides, at Central park lodge an sum of $ 3,200 is put aside for any excess medical attention per month which has been a factor responsible Central park net income devising ability if any.

The above are Westmount rivals who allow occupants to pay for any excess extra services, thereby avoiding the act of undertaking extra disbursals that will finally cut down net income. I believe Westmount should seek to account for such services as dietician and nursing and include them in the monthly/yearly rate per occupant particularly those who utilized the services.

These countries which were non considered by Westmount when puting up the costing theoretical account are major cost Centres with immense figure that must hold been used in the income statement as the supportive services which is the highest disbursals figure. I strongly believe that those facets are responsible for Westmount ‘s hapless consequence in 2005.

Using the cost information in Exhibit 4 design a new costing system, taking into

history the three suite options and the three degrees of required patient attention. What is the new cost per patient under each of the options?

New bing theoretical account for Westmount retirement abode

Exhibit 1

Westmount retirement abode

Departments

Sq. Ft.

No. of Employees

Wages & A ; Benefit ( $ )

Supplies ( $ )

Others ( $ )

Entire ( $ )

Food Servicess

6,100

3

257,671

252,497

510,168

Laundry

4,500

2

77,972

6,109

84,081

Diversion

35,400

2

32,303

10,181

8,145

50,629

Facility

36,500

2

37,872

8,195

46,067

House Keeping

3,200

3

107,053

8,145

160,116

275,314

Operating expenses

General & A ; Adm

3,500

2

149,283

11,032

280,574

440,889

Fixed Operating exp.

241,585

241,585

Management Fees

217,804

217,804

Reserve Asset

50,889

50,889

89,200

14

879,958

347,048

690,420

1,917,426

Using the information in exhibit 6 of the instance survey, I was able to deduce the undermentioned figures utilizing the hourly rate and figure of by the staff involve as in exhibit 2 below.

Exhibit 2

Servicess

Types patient attention

No Medical demands

Medium Medical demands

Intense Medical demands

Entire

Nursing Supervision

1,110.00

6,660.00

11,100.00

18,870.00

Dietician

177.60

710.40

1,598.10

2,486.10

Nursing Attendance

6,864.00

15,840.00

25,080.00

47,784.00

8,151.60

23,210.40

37,778.10

69,140.10

In deducing a costing theoretical account for Westmount taking into history the three suite options, one would hold to first of all divide the disbursals, as in exhibit 1 of the class work, by the figure of occupants. The sum, derived after the division, is so multiplied by five per cent to account for rising prices for the coming old ages. This is as follows:

The entire disbursals = $ 1,917, 426

The entire figure of occupants = 160

Cost per occupants = 1,917,426/160

= $ 11,983.91

The cost per occupant is now multiplied by 5 % for rising prices, $ 11,983.91×1.05

= $ 12,583.10

Now let ‘s first expression at the bing system with the three suite options with the studio as the base figure below:

Studio Suite = $ 12,583.10

One-bedroom Suite per residents/per twelvemonth ( $ 12,583.10×1.25 ) = $ 15,728.88

Two-bedroom suite per residents/per twelvemonth ( $ 12,583.10×1.50 ) = $ 18,874.65

Planing a costing system taking into history the three suite options and the three degrees of required patient attention, that should be done as below:

Cost per resident/ per twelvemonth for a studio suite taking into history the three degrees of required patient attention

No medical needs $ ( 12,583.10 + 8,151.60 ) = $ 20,734.70

Medium medical demands $ ( 12,583.10 + 23,210.40 ) = $ 35,793.50

Intense medical demands $ ( 12,583.10 + 37,778.10 ) = $ 50,361.20

Cost per resident/ per twelvemonth for a One-bedroom suite taking into history the three degrees of required patient attention.

No medical needs $ ( 15,728.88 + 8,151.60 ) = $ 23,880.48

Medium medical demands $ ( 15,728.88 + 23,210.40 ) = $ 38, 939.28

Intense medical demands $ ( 15,728.88 + 37,778.10 ) = $ 53,506.98

Cost per resident/ per twelvemonth for a One-bedroom suite taking into history the three degrees of required patient attention.

No medical needs $ ( 18,874.65 + 8,151.60 ) = $ 27,026.25

Medium medical demands $ ( 18,874.65 + 23,210.40 ) = $ 42,085.05

Intense medical demands $ ( 18,874.65 + 37,778.10 ) = $ 56,652.75.

A sum-up of cost per resident/per twelvemonth

Exhibit 3

Suites

Types patient attention

No Medical demands ( $ )

Medium Medical needs ( $ )

Intense Medical needs ( $ )

Studio Suite

20,734.70

35,793.50

50,361.20

One-bedroom suite

23,880.48

38,939.28

53,506.98

Two-bedroom suite

27,026.25

42,085.05

56,652.75

4.0 How utile is this new information to Roswell for pricing intents? What monetary values should Roswell urge be charged for the assorted suite options and for the assorted degrees of required patient attention?

4.1 Utility of the new information

This new bing information I have prepared will be more utile to Roswell because it has the possible to bring forth more net income as compared to the current costing system net income as stated in the income statement in the instance survey. This new bing information I have designed is based on the services and installations provided by Westmount retirement abode, I took into consideration future rising prices and the excess supportive services as utilised by the occupants in the retirement abode.

As it is now, the new bing theoretical account I have designed for Westmount can assist to maximise in the long tally. This information is allowed for both types of suite available at Westmount and the degree of patient medical attention. Previously, the bing theoretical account of Westmount does non account for the degree of patient attention, which at the terminal allows those with intense medical to pay less and use more of the installations than those who pay more, thereby seting Westmount in a hapless fiscal public presentation. Roswell will happen this information utile as it is now cost per occupant instead than floor country or room size, which has been a job experienced by Roswell where more than one individual resides in a suite. Now with this bing theoretical account, that account for a fee per patients, no patient or occupant will utilize the abode installation for free. Roswell will hold to utilize the pricing method as under the above suites taking into consideration the changing medical demands of the patients/residence, thereby recognizing more net incomes or in other words maximize net income. Even with the degree of patient attention included in the cost per occupant for Westmount, the cost of a suite per occupant at Westmount is still sensible and cheaper every bit compared to the others in the same industry. For case the cost of a studio suite per occupant taking into history the needed degree of patient attention per month which are:

1 ) No medical needs $ 1,727.89, 2 ) Medium medical needs $ 2,982.79, and 3 ) Intense medical needs $ 4,196.76 is more sensible and low-cost than the cost of a studio suite of other retirement places in the same industry.