Management of Accounting Assignment - Value Chain Analysis and Overhead Allocation

This assignment covers the value chain analysis of Medibank Private Ltd and the method of allocation of overhead as per the job costing system. It also includes estimated allocation rates for fixed and variable overhead for the current period and identification of the cost pool and assignment of cost.

Management of accounting assignment

Table of Contents
Introduction......................................................................................................................................4
Question 1........................................................................................................................................4
Part A...........................................................................................................................................4
Part B...........................................................................................................................................5
Question 2........................................................................................................................................8
Estimated allocation rates for fixed and variable overhead for the current period......................8
Computation of total overhead cost allocated to Job 20 in October............................................9
Computation of total cost of Job 20.............................................................................................9
Calculate the amounts of fixed and variable overhead allocated to jobs in October...................9
Selection of the cost pool...........................................................................................................10
Question 3......................................................................................................................................10
Identification of the cost pool and assignment of cost..............................................................10
Determination of the cost driver for each cost pool..................................................................11
Computation of the allocation rates for each cost pool and cost driver.....................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

LIST OF TABLES
Table 1 calculation of the allocation rate for predicted variable and fixed expenses......................9
Table 2 Statement of the allocation rate..........................................................................................9
Table 3 Computation of total overhead cost for Job 20.................................................................10
Table 4 Computation of total cost for Job 20................................................................................10
Table 5 Computation of the Fixed and variable cost for the job...................................................10
Table 6 Allocation of cost..............................................................................................................11
Table 7 Statement showing allocation rates..................................................................................12

Introduction
A company can analyze its internal strength with the help of value chain analysis technique. The
given study is related to the value chain analysis of the company named as Medibank Private
Ltd. Further, this report also shows the method of allocation of the overhead as per the job
costing system. Moreover, various aspects related to the determination of the cost pool, cost
driver and allocation of cost is presented in this study.
Question 1
Part A
Concept of Value Chain
For achieving an enduring competitiveness, high-quality products are offered by the organization
in the business climate. For obtaining the business objectives, it is important for the organization
to match and after that exceed their opponents. It also discloses the needs of the clientele and
finds a way to satisfy them (Winans, Kendall, and Deng, 2017). Value chain analysis proposes
the organized sight of organization which is made of several stages in addition to inputs and
outputs of every different phase. Value chain analysis is completely based on the essential fiscal
principle of advantage. Best opportunities are grasping by the organization by working in a
segment where they have a comparative, more productive advantage in compare to their
participant (Simatupang, Ginardy, and Handayati, 2018).
Benefits of Value Chain Management for business
There are various advantages of business chain management in the organization like it improves
the flow of products and materials, there is a faultless flow of information and also there is an
improved flow of finances.
The Improved Flow of Materials and Products
The flow of product is essential to manage to satisfy the need of the customers in an appropriate
time. As soon as the products are provided to the end-user, the more efficient will be the flow of
product. Besides, that, different factors must be considered like the quality of materials as well as

products that ultimately get to the consumer, the measure of demand and supply and cost which
is involved. Moreover, the stoppage is reduced, and products are observable and visible during
the supply chain (Porter, and Kramer 2019).
The Seamless Flow of Information
Response in real time in always demanded by the users and apart from it, they need easy access
for information regarding the supply chain and the products. The information which is important
to be provided should never be interrupted. In case of facts are not appropriate of incomplete the
connected within both suppliers as well as customers become tensed. All the blockages are
eliminated when value chain management is executed effectively (Ferrer, and Medhekar, 2017).
The Enhanced Flow of Finances
The flow of cash within the organization is improved by supply chain management. The
distinctive supply chain will engage thousands, in case not tens of thousands of expenditure and
invoices yearly. With cash inflows and outflows being changeable and unpredictable, the state of
affairs is made even more difficult (Tuzovic, and Mathews, 2017).
Part B
(I) Mission and objectives of company
The main objective of Medi Bank Pvt. Ltd is to provide better health for better lives. They make
efforts to improve the wellbeing and health of Australians and help the individual to live better
lives with quality. Their major focus is on providing better health to their customers. Moreover,
through their brands, they take care of more than 3.7 million individuals.
Better health outcomes are offered by the Medibank for their health services, health system
support and working in the society. It is the most popular brand in Australia and has a different
and large client base. They have maintained the trusted position, and also they are recognized for
their important role in the health system of Australia (Chandrasekaran, 2017).
(ii) Competitive strategy of the company
The competitive strategy followed by the company is connected with its customers they help
their clients as well as their society to live happier and healthier lives. For fulfilling the

objectives of the company for providing betters lives and health, they made various changes like
they expanded their services for offering the best combination of goods and services and advice
for their consumers. Furthermore, they generate a leading health service for their clientele in
order to stay ahead from their competitors (Nguyen, and Worthington, 2018).
For managing the health and wellbeing of their customers, they play an important role as they
take a step to prevent illness and constant disease, and help them to stay well. They provide the
option for right health and wellbeing and also consider the aspects like how and where healthcare
is delivered. It helps the individual to understand and take charge of their health and comfort and
find a way of the health system (Ferrer, and Medhekar, 2017).
(iii) Value chain model of the company

Figure 1: Value Chain Mode of Medibank Pvt. Ltd
(Source: Porterand Kramer, 2019)
Primary Activities
The primary activities of the value chain in Medibank private limited is connected with selling
the goods and manufacturing to their target consumers. Activities of primary value chain assist in
enhancing the operations of Medibank Private Limited
Inbound Logistics

It is essential to building up strong connections with supplier because their contribution is very
important to store, receive and deliver the goods. Lots of difficulties can be faced by Medibank
Private Limited if they are not analyzing the in-bound logistics within the phases of product
development. Evaluation of in-bound logistics needs that corporation must consider all the
aspects of transformation from raw material to ended goods. Several examples of inbound
logistics are, recovering raw material, storing the inputs as well as internally delivering the raw
material and machinery for starting the production (Prajogo, Oke, and Olhager, 2016.).
Operations
Operational activities are necessary to be analyzed at the time when raw material comes into
hand and corporation is prepared to develop the raw material into the end product and
established in the market. Activates that are connected with the procedure includes packing,
machining, testing, and assembling. Moreover, maintenance and repair of the equipment are also
comes in this segment.
Both service operations, as well as productions, are included in it. Furthermore, for enhancing
the productivity evaluation of operational activity is essential, which further increase the
competence and assure the competitive success of Medibank Private Limited. With the increased
efficiency of the corporations, it can obtain the constant growth of the economy, minimize
productivity and set a strong source for competitive advantage (Hartmann, et al, 2016).
Outbound Logistics
Activities that are connected with outbound logistics are delivery of the goods to the clientele by
going through various intermediaries. Examples of some outbound logistics are scheduling,
handling, order processing, delivering to the destination, order processing and, transporting. For
discovering the basis of competitive advantage and for attaining its business growth objectives,
Medibank Private Limited can examine and optimize the outbound logistics. On the other hand,
when activities of Outbound Logistics are managed on time, then there will be minimum
expenses take place, and procedure will also be completed on time. Apart from this, there would
be a very less negative impact on quality. Besides this, it increases the customer’s satisfaction
and opportunities for development for the company. Specific importance must be given be

Medibank Private Limited for its outbound value chain activities at the time when its obtainable
services and products are fresh and quick delivery is required to the end users.
(IV) Value-added process for the company
The Medibank Private Limited provided the pre-sale and post-sale services for developing the
loyalty of the consumers. Thus, these are value added services for the company. Customers of
today’s generation are focusing on post-sale services, which are very important for promotional
and marketing activities. The support of negative e-WOM, because of its poor support service
cannot be destabilized in the present technologically advanced period.
On the other hand, its support activities are very important for facilitating and organizing the
activities of the primary value chain, thus same are considered as value added service. Moreover,
by evaluating the support activities, various benefits are provided by Medibank Private Limited
(Horng, Chang, and Chen, 2016)
(v) Relevance and usefulness of the above information
By means of value chain analysis utilization of products, finances and information can be done
in a better way. Enhanced flow of facts and information helps the company in recognizing and
developing new opportunities and helps in minimizing the external risks. The constant evolution
of the value chain can assist in filling the significant gaps which negatively affects the
profitability of the company
On the other hand, if the value chain analysis of Medibank Private Limited is executed in an
effective manner that it will definitely improve the flow of product and material due to enhanced
sales forecasting and demand. Apart from this, inventory management also improved by it and
also decreased the stoppages by its tracking actions all through the supply chain.
Question 2
Estimated allocation rates for fixed and variable overhead for the current
period
Table 1 calculation of the allocation rate for predicted variable and fixed expenses

Particulars
Fixed Expenditure (Amount in
$)
Variable expenditure (Amount in
$)
Indirect Labor Wages - 1920
Indirect Supplies - 500
salary of manager 6250
Rent 1000
Utilities 100
Insurance and Taxes 900
Miscellaneous
expenses 1000
Total Expenditure 9250 2420
Table 2 Statement of the allocation rate
Particulars Fixed Expenditure (Amount in $) Variable expenditure (Amount in $)
Allocation Direct Labor Cost Direct Labor Hours
Overhead 9250 2420
Allocation 5725 229
Rate (in $) 1.62 10.57
Computation of total overhead cost allocated to Job 20 in October
Table 3 Computation of total overhead cost for Job 20
Particulars Fixed Overhead Variable Overhead
Rate of allocation 1.62 10.57
Number of allocation 250 10
Total Overhead 405 105.7
Computation of total cost of Job 20
Table 4 Computation of total cost for Job 20
Particulars Amount in $
Direct Labor Cost 250

Equipment and Supplies requisitioned for a client for job 20 1000
Variable Overhead 105.7
Fixed Overhead 405
Total Cost 1760.7
Calculate the amounts of fixed and variable overhead allocated to jobs in
October
Table 5 Computation of the Fixed and variable cost for the job
Particulars Job 20 Job 21 Job 22 Job 23 Other Client
Variable overhead rate 10.57 10.57 10.57 10.57 10.57
Fixed overhead rate 1.62 1.62 1.62 1.62 1.62
Direct Labor Hours 10 18 15 6 180
Direct Labor Cost 250 450 375 150 4500
Fixed overhead 405 729 607.5 243 7290
Variable overhead 105.7 190.26 158.55 63.42 1902.6
Total cost 510.7 919.26 766.05 306.42 9192.6
Selection of the cost pool
A cost pool is referred a combination of the single assets, which is determined as per the
operations running by the company. In the Job costing technique, by the identification of the cost
pool, overhead is allocated (Haroun, 2015). Further, the cost is assigned to the product on the
basis of a cost driver. It is generally like the cost Centre, in which cost is allocated. For example,
overhead connected with the setup of the machine, the number of machines is considered as cost
pool. Thus, it can be said that identification of the cost pool is not an easy task, for allocation of
the overhead cost. in the company, several overheads incurred, and it is not essential that all
overhead can be allocated on the basis of a single cost pool (Holzhacker, Krishnan, and
Mahlendorf, 2015). Therefore,the company is required to the proper combination of assets, as
per the cost pool, and which leads to the systematic allocation of the overhead cost. for example,
for the production of a product, it requires more machinery and less labour, then in such case,the

cost connected with the machinery will rise, and labour cost will decline. So, it is required by the
accountant to select two cost pools instead of one.
Question 3
Identification of the cost pool and assignment of cost
On the basis of particular activities of the company, if individual costs are combined, then it is
considered as cost pool. In other words, it can be said that a grouping of individual cost ,
specifically by the department of company or service Centre, is known as cost pool. On the basis
of the cost pool, the company allocates the cost. Generally, the allocation of the factory overhead
is based on the cost pool (Hoozée, and Hansen, 2017).
In the given problem, the company owns an animal shelter, that running the three activities, such
as housing and finding homes for stray and unwanted animals, providing health care and
veterinarian services for the animals, and pet training services. On the basis of the activity, there
are three cost pools, such as Animal shelter, director and training, and veterinarian clinic.
Allocation of the cost on the basis of cost pool is as below –
Table 6 Allocation of cost
Particulars Total
expenses
Animal
Shelter
Director and
Training
Veterinarian
Clinic
Salary of Director and
Staff $60,000.00 $0.00 $60,000.00 $0.00
Salary of employee of
animal shelter $100,000.00 $100,000.00 $0.00 $0.00
Veterinarians and
Technicians $150,000.00 $0.00 $0.00 $150,000.00
Cost Related with
building $200,000.00 $100,000.00 $60,000.00 $40,000.00
Food and supplies $125,000.00 $50,000.00 $0.00 $75,000.00
Animal Trainers $40,000.00 $10,000.00 $20,000.00 $10,000.00
Total Cost $675,000.00 $260,000.00 $140,000.00 $275,000.00

Determination of the cost driver for each cost pool
For every cost pool, it is required by the company to identify the cost driver. Expenses of the
business activities affected by the cost driver. It is very important to determine a proper cost
driver as it affected the cost of labour, repair and maintenance and another cost of the variable
(Newcomer, Hatry, and Wholey, 2015). Indirect cost or overhead expenses of the company are
allocated on the basis of the cost driver. Business activities of the company directly affected by
the cost driver. It is not essential that one activity has only one cost driver (Guajardo, and
Rönnqvist, 2015).
In the given study, it has been identified that there are three cost pool, such as Animal
Shelter, Director and Training, and Veterinarian Service. The cost driver of each cost pools is
Number of animals sheltered, Number of classes provided, and Number of animal visits
respectively.
Computation of the allocation rates for each cost pool and cost driver
Table 7 Statement showing allocation rates
Cost Pool Total Cost Cost Driver Allocation rate
Animal Shelter $260000 4500 57.78
Director and Training $140000 125 1120.00
Veterinarian Services $275000 5000 55.00
Conclusion
Value chain analysis plays a very important role in the identification of the internal capabilities
of the company. In a competitive environment, a company can improvise their performance with
the help of this technique. It has been evaluated the Medibank Private Limited, implemented this
technique and achieved a good position in the market. It assists in the identification of the
manner by which the company can create the value to the firm, shareholders, as well as
stakeholders. Further, with the aspect of allocation of overhead, it has been observed that job
costing method is useful if the company produces different products. Along with this, by the

identification of the cost pool company can allocate the overhead cost in a systematic and
rational manner.

References
Chandrasekaran, N., 2017. Economic Drivers of Technology Enabled Health Services. European
Journal of Multidisciplinary Studies, 2(7), pp.150-157.
Ferrer, M. and Medhekar, A., 2017. The factors are impacting on the management of global
medical tourism service supply chain. GSTF Journal on Business Review (GBR), 2(2).
Guajardo, M. and Rönnqvist, M., 2015. Cost allocation in inventory pools of spare parts with
service-differentiated demand classes. International Journal of Production Research, 53(1),
pp.220-237.
Haroun, A.E., 2015. Maintenance cost estimation: application of activity-based costing as a fair
estimate method. Journal of Quality in Maintenance Engineering, 21(3), pp.258-270.
Hartmann, P.M., Zaki, M., Feldmann, N. and Neely, A., 2016. Capturing value from big data–a
taxonomy of data-driven business models used by start-up firms. International Journal of
Operations & Production Management, 36(10), pp.1382-1406.
Holzhacker, M., Krishnan, R. and Mahlendorf, M.D., 2015. Unraveling the black box of cost
behavior: An empirical investigation of risk drivers, managerial resource procurement, and cost
elasticity. The Accounting Review, 90(6), pp.2305-2335.
Hoozée, S. and Hansen, S.C., 2017. A comparison of activity-based costing and time-driven
activity-based costing. Journal of Management Accounting Research, 30(1), pp.143-167.
Horng, S.C., Chang, A.H. and Chen, K.Y., 2016. The business model and value chain of cultural
and creative industry. In Thriving in a new world economy (pp. 198-203). Springer, Cham.
Newcomer, K.E., Hatry, H.P. and Wholey, J.S., 2015. Cost-effectiveness and cost-benefit
analysis. Handbook of practical program evaluation, p.636.
Nguyen, L. and Worthington, A.C., 2018. Efficiency and Productivity of Australian Private
Health Insurers.

Porter, M.E. and Kramer, M.R., 2019. Creating shared value. In Managing sustainable
business (pp. 323-346). Springer, Dordrecht.
Prajogo, D., Oke, A. and Olhager, J., 2016. Supply chain processes: Linking supply logistics
integration, supply performance, lean processes and competitive performance. International
Journal of Operations & Production Management, 36(2), pp.220-238.
Simatupang, T.M., Ginardy, R. and Handayati, Y., 2018. New framework for value chain
thinking. International Journal of Value Chain Management, 9(3), pp.289-309.
Tuzovic, S. and Mathews, S., 2017. Points for Fitness–How Smart Wearable Technology
Transforms Loyalty Programs. In Dienstleistungen 4.0 (pp. 445-463). Springer Gabler,
Wiesbaden.
Winans, K., Kendall, A. and Deng, H., 2017. The history and current applications of the circular
economy concept. Renewable and Sustainable Energy Reviews, 68, pp.825-833.