Explanation of the Activity Based Costing and Its feature
Discuss About The Accounting Tool Appropriate For Healthscope.
Healthscope Limited has been facing challenges and difficulties in using the limited costs as well as resources for the provision of the hospital needs. The Medical research also facilitates the introduction of the modern medicines and techniques; this causes an increase in the consumed costs at the Healthscope Limited. The rise in prices of healthcare in any institution has got negative impact both to the customers and Healthscope Limited. To the customers, it will increase their expenditure on the medical services, and to the Healthscope Limited, it will lower their performance due to lower turnover of the customers. The Healthscope Limited has to look for the favorite ways of financing the services which they offer to the customers since the general Healthscope Limited insurances are not enough to cover the expensive costs of healthcare services. The Healthscope Limited performs under pressure to be one of the values efficient. The institution has to put their attention on establishing an acceptable method of accounting as well as costing system that will help them in improving the efficiency of their operations (Gillespie and Privitera 2018). The management have the responsibility of coming up with the suitable tool that will help them determine the available costs in the hospital; they also have to apply cost accounting to estimate the cost per unit of the services that they offer to their client. Such kind of information will help the institution to develop realistic prices, budget; identify the inefficiencies as well as projecting the effect of any change in demand would cause to the available resources. To ensure effective management, Healthscope Limited should develop a system of cost management that uses the absorption technique. The use of the traditional method of assigning costs by the Healthscope Limited has caused alterations in the financial report and indirect costs, thereby limiting the management of obtaining precise information relating to the allocation of the expenses in the organization. Therefore, it is advisable for the administration to develop Activity-based costing model to help solve the problem of the traditional costs system. The paper contains different sections that will help in explaining how Healthscope Limited can appropriately apply the use of the ABC system. Finally, there is the recommendation of the alternative model that the management can use instead of the Activity-based costing model.
Activity-based costing is an approach used in monitoring and costing of activities, and it entails finding costing final outputs and resources consumption. Resources are apportioned to activities then the events are assigned to costs objects (Miquel et al. 2018). The model uses the cost drivers to connect the costs of action to outputs. Some researchers named ABC system as the modern substitute of absorption costing that enables managers to understand customer and product net profitability clearly. This model provides many institutions such as the manufacturing industries with valuables information useful for effective decision making. ABC mainly put it focus on the cost drivers, which is the actual activities that trigger an increase in costs (Garland, Yim and Bogyo 2016). The traditional absorption costing is used in emphasizing on the volume-linked drivers, for example, labor hours, whereas ABC system also applies the transaction-based drivers, for instance, the orders number received. ABC system assists the employees in understanding the different costs that are involved in the process, which will further enable them to identify non-value and value-added activities, analyze the costs and implementation of the improvement process with the intention of getting the benefits. Therefore, ABC system is a continuous process that is useful for cost pools identification, or activity department, within the business enterprises or institution then allocate costs to cost drivers (services and products) depending on a total number of the transaction or events involved in the provision of services or products processes (Bauer et al. 2018). Management can use this approach to improve the performance of the corporate. Activity-based costing has the following features; the cost drivers determine the costs linked to activity, the more suitable distinction between the design of cost behavior are scale related, decisions related, scope related and time-related and it is made up of 2 different types of costs, namely variable and fixed values which are useful in the provision of quality information that helps in designing a cost system (Piña et al. 2018).
Explanation of how Activity based costing model aligns with strategies and goals of the Healthscope Limited
The mission of the Healthscope Limited to provide quality healthcare services to their customers. The objectives of the Healthscope Limited are to provide excellent medical services to all the patients that seek the attendance of the healthcare. Healthscope is also focused on the provision of multi-disciplinary services of the healthcare, and different specialist-oriented. The healthcare aim at giving enough support to the community this will ensure that the hospital provides back to the society. The purpose of providing treatment issues relating to mental and for alcohol abuse as well as the drug. Healthscope also aims at providing quality pathology and hospital services. Finally, the healthcare seeks to develop multidisciplinary centers (Baldassarre, Ricciardi and Campo 2018).
The next plan of the of the healthcare is to focus in areas of the high population especially the metropolitan areas as well as being of urban sprawl this will enable them to expand to expand their pathology businesses and also to integrate their hospital. The hospital also has a strategy of withdrawing from locations that may cause disruptions their patients this will help in reducing the disturbance caused to the patient care. Healthscope established the program where their staff and doctors visit those who are sick at their resident to offer treatment and informed them of any changes in the hospital. This will enable the healthcare to improve the quality of service delivery to their clients (Vooijs et al. 2014).
Activity-based costing helps the Healthscope in achieving most of its strategies in several ways. First, it facilitates the process of cost efficiency by providing more relevant and accurate information on the activities that the Healthscope Limited performs, this will lead to an abrupt reduction in costs as well as cost management (Refaie, Fouad, Li and Shurrab 2014). The management can also use this accounting tool to improve and facilitate the processes of decision making in the organization. This approach will help the institution to quantify and measure the real activities costs in every department, thereby assisting the firm to stay focus in identifying the correlation between the means of performing activities and the prices (Himmelstein et al. 2014). A good understanding of the costs elements is essential factors since they help the firm to estimate its profitability and the performance in the area of specialization. Costing can assist the organization in solving particular issues in any department within the organization or support decision making at the department level (Häkkinen et al. 2015). Healthscope Limited as well known institution can also apply the use of Activity-based costing in the outpatient care in this area there are many units of service with each having small cost/unit. The healthcare will be able to identify inefficient departments, activities, and products and then come up with ways of improving those areas (Treacy et al. 2018). The Activity-based costing will ensure that the hospital produces exact unit costs of all the services such as the medical service, this will help the hospital deliver its strategies in that it will enhance transparency and efficiency in the hospital. Most of the customers will seek for their services hence increasing the return of the hospital. With the improvement of the efficiency and costing system, the management will ensure that deliver quality medical services to the Australian citizens (Schweizer, Cullen, Perencevich and Sarrazin 2014). The model will also enable the administration to balance and use the scarce resources in the hospital. Thus it will be able to save most of the costs. The organization can also apply costs drivers in designing the cost behavior pattern. This will help the institution in the creation of its objectives (Schweizer, Cullen, Perencevich and Sarrazin 2014).
ABC system is an essential approach that every institution should develop. It can allow for the growth of the hospitals such as the Healthscope Limited to a greater level.
In order to ensure effective implementation of the Model, the management should identify the areas within the organization that require significant improvement, for example, the functional areas. And then provide the necessary resources needed for the implementation process (Engeström 2018).
The management should also seek the help of the experts to help them educate all the staffs about the use of the approach. The training process will enable every employee to have general knowledge of how the Activity-based costing operates and improve the organization performance at large. The management should also organize benchmarking of both the employees and the entire staff (Kassler, Tomoyasu and Conway 2015).
The most appropriate tool suitable for Healthscope is Six Sigma; this was once being used as the business strategy by various organizations. it will be the most suitable since it will involve designing, improving, as well as monitoring process to eliminate and reduce the hospital waste by increasing the financial stability of the hospital and also it will help the hospital to maximize its satisfaction process.( Silva and Oliveira 2018). It will assist the institution to measure any improvement and provide any solution that can help the .organization realize the set goals. This approach uses 5 phased processes which are disciplined, structured and vigorous. The Healthscope can both use six sigma and Activity-based costing because it will help solve the problems that the Activity-based costing are unable to explain (Mossialos, Wenzl, Osborn and Sarnak 2016).
Conclusion
This paper discusses the application of Activity-based costing in Healthscope Limited. ABC is quite crucial because it can enable the institution to accurately assign costs to particular activities this process will help the organization to improve the decision making. The management should focus their attention on improving the measurement of unit costs as this will enable transparency within the organization. Though the implementation process of the model into the organization system may not be natural, the model can improve the performance of every department. The paper also discusses the benefits that are associated with the use of the Activity-based system in the institution. One of the advantages that the organization will get by using the approach is that it will increase the performance and the profitability of the firm. The management should apply other management tools in order to facilitate the efficiency of the Activity-based costing system.
References
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