CS – 79% (Case Study)

Congratulations – you are done the assignments and the Case Study. This case was intended to illustrate complexities
that exist in determining a costing system. This case is particularly poignant due to the impact on end-consumer pricing.

As part of this review you needed to:

 Address which costs are direct and which are indirect

 Determine how to allocate the indirect costs – square footage, # of hours, equally, or ???
You have the essence of it. You demonstrated an understanding of the need to move to an activity-based costing
system while maintaining

• Competitive pricing

• System that is understandable to the residents

• System that can be monitored / maintained / updated

• Reflect consumption of resources

 Facilities
 Meals
 Recreation
 Medical Services

• 7(10 marks) - Use of language, including grammatical elements

• 12(15 marks) Identification of problems and issues

• 52(65 marks) - Alternatives and analysis and evaluation of these alternatives

• 8(10 marks)- A recommendation—with justification

Final Exam On-Line Using ProctorU

Due to Covid 19 An on-line exam is now the only option for this course and there is a tab in Moodle that explains this.
The exam is administered remotely by a company called ProctorU over the computer. You can take the exam largely
when and where you want it. You must pay extra for it, but it may be worth it. Also, you will get your final mark more
quickly as there is no delay in getting your exam to me for marking as it is emailed to me right away. I have had several
students write the exam using Proctor U and it seems to go well. You use your financial calculator to calculate the
answers and enter the info using the word processor in Proctor U just the same as you did with the assignments in
Word. Please contact the Exams Department (exams@tru.ca) for more info.

Please note the exam format has been adjusted slightly in recognition of it being an online exam. For example, if in the
practice exam you see a template or grid lines those typically are provided for you in the on-line version. When
preparing for a Proctor U exam you should do the practice work directly on your computer.
It has been a pleasure working with you and I wish you every success with your future studies. Perhaps our paths will
cross again in another course.

Note – it is the marks in this system that are used to calculate your grade and not the marks in Moodle. Also, you should
be aware there is typically a lag of 3 days between getting your marked assignment back and the marks being recorded
into this system.

Regards, Keith Whitmore, M.Sc., MBA, CPA,CGA, P.Eng.

Faculty – Thompson Rivers University – Open Learning

Per info in Instructions in Moodle

Note: A thorough analysis would require 1,000 words or more, plus supporting numerical
analysis.

For your info your paper was 1,906 words

Idea for your Next Course

Note – it you enjoy the topic of Cost Accounting and are looking for another course I recommend Acct 4251 which does
an excellent job of using case studies to illustrate the concepts. You are required as part of the course to review four
cases (typically three to five page paper) and then to write an actual case. If in your work, you have thought of a
product or service that you might want to further investigate using Cost Accounting tools then you might enjoy this
course.

For students in the CPA program Acct 4251 offers credit as xxxx (see)

https://www.bccpa.ca/getmedia/ef6720c7-05f5-4c35-bc26-ef935b1a8753/Transfer-Credit-Guide_BC.pdf

ACCT 4251
Advanced Management Accounting
3.0 Credits

Description

Building on ACCT 3251: Intermediate Management Accounting, students explore the

integrative and interdisciplinary role of management accounting and its contribution to
the strategic management process. Students discuss the provision of quantitative and
non-quantitative information for planning, control, and decision making. Topics include
costing systems; allocating costs and revenues including support service costs, fixed
costs, joint product costs, bundled product revenues, and customer profitability;
management information systems; the importance of budgeting; the importance of
variance analysis; capital budgeting and investment decision making; quality issues and
supply chain strategies; transfer pricing; performance measurement; compensation
issues; and strategic processes and balanced scorecards.

Prerequisites

Recommended: ACCT 3251: Intermediate Management Accounting

Further info is available at

http://www.tru.ca/distance/courses/acct4251.html
***********************************************************
Westmount Retirement Residence
Introduction
Westmount Retirement Residence was established in 1997 as a 125-unit retirement residence.1 The

residence offered both assisted living and independent supportive living options to seniors in the

community. In addition, Westmount provides variety of personal services such as housekeeping,

meal and snack service, nursing care, medication administration and monitoring, dietician services,

24-hour emergency response and security, reception desk services, on-site manager and social and

recreational services. All these services were included in their monthly rates and were comparatively

lower in price, as compared to their competitors.

You should expand a bit on the competitors and what they are doing. No
matter what pricing model is used it is not effective if at the end of the day
your product or service is not competitive in the market.

You also need to comment on the changing demographics as the fact that
people are living longer and that their care needs are now more diverse is a
key element of this case.

Current Costing System

Westmount's current pricing model charges all customers the same amount. Regardless of

which service you use, this pricing method widens the gap between services for different age

groups, thus reducing profitability. This is unclear.

Some need intensive health care and support services, others do not need the same level of health

care but are charged the same for everything. Profits are shrinking due to changing demographics

and expanding health insurance, requiring the development of new pricing models that charge

customers according to the services they use.

However, because Westmount allows departments to calculate their own costs, the current costing

method has some advantages. Costs directly attributable to a particular department are assigned to

each department, allowing Westmount to determine which department contributed more.

Again, unclear.

Additionally, Westmount's pricing is lower compared to its competitors. Current costing system pricing

encourages clients to go to Westmount residences, with options available to suit their needs.

Limitation
Westmount's cost model has the problem of price differentiation on a patient-by-patient basis. The

current costing model allocates patient-based prices according to the size of the room and does not

consider the different needs of the resident. "However, the size of the room and the flat rate alone do

not determine the price structure," so Westmount has 1) people with no medical needs, 2) people with

moderate medical needs, and 3) intensive. People with medical needs.

Westmount cannot meet the diverse needs of its residents with its current cost model. This is

weighed against the ability to make a profit in the long run. Preferably, these costs should be

distributed to patients as needed. Even distribution of overhead by Westmount under the current

costing model is unacceptable, so to speak. This is because Westmount understands departments do

not have equal square footage, so evenly distributing overhead across these departments would

reduce the current cost model inadequate.

When allocating overhead, it would have been appropriate if Westmount had been allocating based

on departmental square feet or as a percentage of total spending. The costing model currently used

at Westmount does not include a system to account for the various services of the organization.

Westmount Retirement Home offers the following services to its patients/residents: 1) nursing and 2)

nutritional counseling. Westmount's current cost model does not take these services into account.
"Certain patients with serious medical conditions, such as diabetes, rely heavily on these services,

while other residents have never used these services.

Alternatives
Department Cost Allocation
The company evenly divided overhead costs into six different departments, but this was not the right

way to do it because not all departments have the same size and number of employees. Therefore,

new cost allocation was required, where "Wages and benefits" are assigned based on the number of

employees in each department. Next, we divided "supplies" and "Others" into square feet by

department. It will give us the true cost affiliated with each six departments.

To understand, the percentage of each of these cost types in overhead costs is determined. Next, the

percentage, the percentage of employees working in a particular area the department is in charge.

And how many square feet did each department compare to the total. This date will be used for

dividing. There were also two employees and "general and admin". It is important to consider this

data in the distribution of 3,500 square meters. As shown in appendix 1, the cost allocated to each

department based on the square feet and number of employees and gives us more accurate

comparison.

The details belong in an Appendix so that the body of your memo can be concise and easily read.

Total Cost per Department

Wages & benefit Supplies Other Total

Food Service 295,646 255,756 27,482 578,884

Supportive Ser 753,581 15,630 45,954 815,165

Laundry 103,288 8513 28,419 140,220

Recreation 57,619 29093 159,486 246,199

Facility 63,188 38381 414,663 516,232

Housekeeping 145,028 9855 14,417 169299

Resident Cost allocation

For calculating the cost per resident is it also important to allocate individual resident costs.

The total number of residents is 160. Not each resident uses the same amount of certain

services. Food service, laundry service and recreational services are for each resident the

same. Those variable costs can be distributed evenly. For the facility services, Roswell

determined that 50% should be distributed evenly and the other based on room size.

The table below shows the listed fixed cost

Fixed Cost Total Fixed Cost Number of residents Cost per resident

Food service 578,883.57 160 3618

Laundry Service 140,220.17 160 876.38

Recreational Service 246,199.24 160 1538.75

Facility Service 50% 258116 160 1613.23

The other 50% of the facility cost, as well as housekeeping costs would be distributed based on room

size. Appendix 2 shows the detailed figure.

Total
50% Variable Sq ft cost
Facilit housekeepin Housekeepin per per
  y cost g Facility Rate g Rate room room
Studi 25811
o 6 169,209 2.99 4.57 400 3,025
One 25811
bed 6 169,209 2.99 4.57 500 3,782
Two 25811
beds 6 169,209 2.99 4.57 600 4,538
The cost per resident for these costs is calculated by determining the cost rate of these two variable

costs. The rate is calculated by dividing the total cost by the total number of sq feet. These two rates

were then added together and multiplied by the number of square feet per room.

Furthermore, supportive services such as nurse and attendant would be based on need and

calculated using the hourly rates given. The three categories: no, medium and high medical needs

were distributed using the given hourly rates.

Per resident support cost allocation

Support cost allocation Number of residents Support cost per

resident

No need 100,613.70 55 1829.34

Medium 353,118.06 65 5432.59

High 361,433.24 40 9035.83

Total cost per resident

All the fixed costs determined, and the variable cost divided based on medical needs. Appendix 4, the

costs are divided over six different departments. For each department, calculations have been made

considering the room type and whether medical necessity is needed.

Fixed Costs Variable  

Food Supportive Housekeeping
  Service Laundry Recreation Facility services Facility Total
No Medical              
Studio 3618.02 867.36 1538.75 1613.23 1829.34 3024 12490.7
One-bedroom 3618.02 867.36 1538.75 1613.23 1829.34 3780 13246.7
Two-bedroom 3618.02 867.36 1538.75 1613.23 1829.34 4536 14002.7
Moderate
Medical              
Studio 3618.02 867.36 1538.75 1613.23 5432.59 3024 16093.95
One-bedroom 3618.02 867.36 1538.75 1613.23 5432.59 3780 16849.95
Two-bedroom 3618.02 867.36 1538.75 1613.23 5432.59 4536 17605.95
Intense
Medical              
Studio 3618.02 867.36 1538.75 1613.23 9035.83 3024 19697.19
 One-bedroom 3618.02 867.36 1538.75 1613.23 9035.83 3780 20453.19
Two-bedroom 3618.02 867.36 1538.75 1613.23 9035.83 4536 21209.19

Studio – no medical needs $ 12,490.70

Studio – Moderate medical $ 16,093.95

Studio – intense Medical $ 19,697.19

One Bedroom – no medical needs $13246.70

One bedroom – moderate medical $ 16849.95

One bedroom – Intense medical $20453.19

Two Bedroom – no medical needs $14002.70

Two bedroom – moderate medical $ 17605.95

Two bedroom – Intense medical $21,209.19

How do these prices compare to the competition?

Conclusion
Changing the pricing system and understanding how to allocate costs accurately can positively

impact the profitability of a company.

In this report, the Westmount case was analyzed, and with the results of the research done, a new

pricing model was implemented to help increase the retirement residence's profitability. The problem

with Westmount's old pricing model was that its approach was way too vague and simple as it

charged each resident the same amount of money, no matter what services and medical expenses it

required. This error resulted in a poor understanding of the origins of most costs, which led to a

decrease in the profitability of Westmount.

The new pricing model, west Westmount can charge each resident more accurately based on the

patients demands.

Appendices
Appendix 1: Cost allocation system
Wages & benefit (based on number of employees)
Wages & Benefits (cost driver. Number of employees)
  Overhead costs Departments
Support
ive
Managem General & Food Service Laundr Recrea Houseke
  ent fees admin Service s y tion Facility eping Total
Number   2 3 17 2 2 2 3 31
of
employ
ees
%-   6.45% 9.68% 54.84% 6.45% 6.45% 6.45% 9.68%  
employ
ees
%-     10.34% 58.62% 6.90% 6.90% 6.90% 10.34% 29
employ
ees
Direct 217,804 149,283 257,671 538,392 77,972 32,303 37,872 107,053 1,051,263
costs
Allocati   14,052 21,078 119,441 14,052 14,052 14,052 21,078  
on
mgmt.
fees
    163,335              
Allocati -217,804 -163,335 16,897 95,748 11,264 11,264 11,264 16,897  
on
manage
ment
fees
Total 0 0 295,646 753,581 103,288 57,619 63,188 145,028 1,418,350

Wages & Benefits (cost driver. Number of employees)

  Overhead costs Departments
Supporti
Managem General & Food ve Recreatio Houseke
  ent fees admin Service Services Laundry n Facility eping Total
Number
of
employ
ees   3,500 6,100 10,200 4,500 35,400 56,500 3,200 119400
%-
employ
ees   2.93% 5.11% 8.54% 3.77% 29.65% 47.32% 2.68%  
%-
employ
ees     5.26% 8.80% 3.88% 30.54% 48.75% 2.76% 115,900
Direct 50,889 11,032 252,497  10,181 6,109 10,181 8,195 8,145 168,261
costs
Allocati   1,491.72 2,599.86 4,347.30 1,918 15,088 24,081 1,364  
on
manage
ment
fees
  -50,889 12,524              
Allocati -12,525 659.14 1102.17 486.25 3825.19 6105.18 345.78  
on
manage
ment
fees
Total 0 0 255,756 15,630 8513 29093 38381 9855 357,229

Other Cost driver

  Overhead costs Departments
Support
ive
Managem General & Food Service Laundr Recrea Houseke
  ent fees admin Service s y tion Facility eping Total
Number
of
employ
ees   3500 6100 10,200 4500 35400 56500 3200 119400
%-
employ
ees   2.93% 5.11% 8.54% 3.77% 29.65% 47.32% 2.68%  
%-
employ
ees     5.26% 8.80% 3.88% 30.54% 48.75% 2.76% 115,900
Direct 241,585 280,574     8,145 0 160,116 0 168,261
costs
Allocati   7,082 12,342 20,638 9,105 71,626 114,318 6,475  
on
manage
ment
fees
  -241,585 287,656              
Allocati   -7,082 15,140 25,316 11,169 87,860 140,229 7,942  
on
manage
ment
fees
Total 0 0 27,482 45,954 28,419 159,486 414,663 14,417 690,420

Appendix 2: Facility cost (50%) and housekeeping cost

Variable cost based on size (50% Facility cost and housekeeping
cost)
  Total Sq ft # Of rooms Total sq/ft
Studio 400 75 30,000
One bed 500 35 17,500
Two bed 600 15 9,000
  1,500   56,500

50% Variable Sq ft Total

Facility housekeepin Housekeepin per cost per
  cost g Facility Rate g Rate room room
25811
Studio 6 169,209 2.99 4.57 400 3,025
One 25811
bed 6 169,209 2.99 4.57 500 3,782
Two 25811
beds 6 169,209 2.99 4.57 600 4,538

Total 11,340

Appendix 3: Medical needs and hourly employees

Hours of Hours of
Hours of Nursing Dietician Care Attendant care total
Type of # of Supervision Care per per Resident per Resident per hours Total
need resident Resident per week per week week resident hours
No Medical
needs 55 0.25 0.1 1.3 1.65 90.75
Moderate
needs 65 1.5 0.4 3 4.9 318.5
Intense
need 40 2.5 0.9 4.75 8.15 326
            735.25

Total Support Cost allocation

Cost Total hours per total hours support cost
  Department type all type total
no need 815165 90.75 735.25 100613.70
Moderate needs 815165 318.5 735.25 353118.06
Intense needs 815165 326 735.25 361433.24

Appendix 4: Total costs per resident based on medical needs and type of room
Fixed Costs Variable  
Food Supportive Housekeeping
  Service Laundry Recreation Facility services Facility Total
No Medical              
Studio 3618.02 867.36 1538.75 1613.23 1829.34 3024 12490.7
One-bedroom 3618.02 867.36 1538.75 1613.23 1829.34 3780 13246.7
Two-bedroom 3618.02 867.36 1538.75 1613.23 1829.34 4536 14002.7
Moderate
Medical              
Studio 3618.02 867.36 1538.75 1613.23 5432.59 3024 16093.95
One-bedroom 3618.02 867.36 1538.75 1613.23 5432.59 3780 16849.95
Two-bedroom 3618.02 867.36 1538.75 1613.23 5432.59 4536 17605.95
Intense
Medical              
Studio 3618.02 867.36 1538.75 1613.23 9035.83 3024 19697.19
One-bedroom 3618.02 867.36 1538.75 1613.23 9035.83 3780 20453.19
Two-bedroom 3618.02 867.36 1538.75 1613.23 9035.83 4536 21209.19