Activity Based Costing Analysis Report: Ramsay Health Care Strategies

This report delves into the application of Activity-Based Costing (ABC) within Ramsay Health Care (RHC). It begins with an executive summary outlining the benefits and limitations of ABC, such as improved overhead control, customer profitability understanding, and decision-making capabilities, while also acknowledging challenges like cost driver selection and data interpretation. The introduction highlights the challenges RHC faces, including rising healthcare costs and an aging population, and positions ABC as a crucial tool for cost management by linking activities to costs. The report then defines ABC, outlining its features like cost allocation based on activities and its role in identifying causal relationships between activities and costs. The report further explores how ABC supports RHC's mission and objectives, including strategies for business growth and stakeholder loyalty. It also discusses the implementation of ABC, emphasizing the need for a practical mindset and knowledgeable personnel for data interpretation. Finally, the report suggests Total Quality Management (TQM) as an alternative management accounting tool and concludes by reiterating the importance of accurate cost measurement and the potential of ABC in improving healthcare service delivery.

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ACTIVITY BASED COSTING
By (Student’s Name)
Professor Name
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ACTIVITY BASED COSTING
Table of Contents
Executive summary.........................................................................................................................3
Introduction......................................................................................................................................4
Meaning of Activity-Based Model and its features.........................................................................4
How ABC supports the modern strategies and goals of Ramsay health care..................................6
The mission and objectives of the organization...........................................................................6
Corporate strategy of Ramsay health care...................................................................................6
Explanation of how the model helps in achieving the strategies of the company.......................7
Alternative management accounting tool suitable for Ramsay health care.....................................7
Recommendation for the implementation of ABC for Ramsay health care....................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Executive summary
This report discusses the benefits of ABC system to an organization. It also enlightens the
limitation associated with the implementation of the Model to the organization. Some of the
major benefits of the ABC system include; it allows the Managers to have full control of the
overhead as well as understanding the profitability of customers and products, facilitates
benchmarking, it enables supply chain, value streams and costing of processes. ABC system also
acts as the tool for decision making. Some of the major limitation of the ABC system discussed
in the paper includes: sometimes it is difficult to choose on the best cost drivers, it is hard to
estimate cost based on the daily activities of the organization, report produce by Activity based
costing do not obey GAAP and the data of the system can be misinterpreted easily by the
Managers hence leading to bias decision making. ABC system cannot solve all the problems of
the organization therefore; it is advisable for the managers to use other management tools such as
Total quality management to help in decision making process. Activity based costing is the best
approach the healthcare should use in apportioning health costs.

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Introduction
This report discusses the application of the ABC model in the Ramsay health care. RHC
is an organization that operates and owns the facilities of the healthcare. Its facilities cover
different needs of the healthcare from minor surgery to complex surgeries procedures. The model
helps the healthcare to solve the problems that they are facing. The issues that the healthcare is
facing include the rising costs of healthcare services and the increasing numbers of elderly who
use the services of the healthcare. ABC provides the important approach to managing cost in the
hospital. Cost management can benefit the healthcare if the activities of the care are linked to
cost (Mahal and Hossain 2015). The framework aligns inputs through the process to outcomes
and outputs. It assigns costs based on the patients to care requirements rather than the structure
of the management. Ramsay health care needs to improve the way it delivers its services and
work. Therefore, ABC model can improve the activities of the Ramsay healthcare. The paper is
separated into different sections. The first section explains the meaning of Activity-based model
and its characteristics. The next section is the explanation of how the approach supports goals
and strategies of the institution. The third part of the paper discusses the recommendation about
the actual implementation of the Activity-based model for the Ramsay healthcare. The last part
explained in detail the alternative models that can be used by the organization.
Meaning of Activity-Based Model and its features
ABC is a method of accounting that recognizes the activities being performed by the firm
and then allocates indirect costs to commodities. ABC system identifies the correlation between
activities, products, and cost, and through this; it then apportions indirect cost to commodities. It
is difficult to apportion some of the costs by use of ABC approach of cost accounting. An

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example is the indirect cost i.e. office staff and management salaries are mostly hard to be a
portion of a specific commodity produced (Javid, Hadian, Ghaderi, Ghaffari and Salehi, 2016).
Activity-based costing is an approach used by various institutions to accumulate the cost
for a given cost object (such as products, customers, and services) that signifies the exact as well
as the true amount of economic resources used or needed by the entity. The model occurs in
different stages. The first phase is called Costa data; this is where a determination of the cost of
essential activities takes place. The first phase can also be named as the ABPC (Activity based
process costing). The amount indicated in costs pools are then being share out to products,
services or another dissimilar cost object. The second phase is called ABC.
The aim of ABC is to establish the causal relationship among entities, resources,
activities in allocating costs of overhead. The main beliefs that surround this model of the cost is
that is being triggered and elements that affect both the services and products cost can be
controlled by the institution (Etges, de Souza, Kliemann and Felix 2018).
The features of the ABC model include the following: Total costs are divided into two
parts which include fixed and variable costs. The two type of cost is significant in the delivery of
quality information that helps in designing suitable cost system. Another feature of the Active
based costing approach is that suitable difference is established between the cost behavior
patterns (Karaboga, Gorkemli, Ozturk and Karaboga 2014). The costs patterns are volume
related, diversity-related, events related and time-related. The next characteristics are that a
suitable cost drives must be identified for the allocation of expenses to a commodity. Lastly, cost
drivers determine the pattern of cost behavior (Malmi 2016).

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How ABC supports the modern strategies and goals of Ramsay health care
The mission and objectives of the organization
The mission of the Ramsay health care is to encourage and recognize the values of the
teams and people. The organization looks for modern ways of performing their activities. They
also have the mission of growing the business while preserving maintainable levels of
profitability, giving a platform for the loyalty of the stakeholders (Dwivedi and Chakraborty
2014). The organization also builds positive correlation to help in achieving the positive result
for all the people.
The objectives of the Ramsay health care includes: to increase the delivery of their
services when there are opportunities required to satisfy the demand and need of the customers,
on monetarily viable basis, provide a therapeutic and safe environment for the Staff, visitors and
Patients, the organization also aim at increasing the rates of satisfaction of employees, visiting
medical officers and patients. The healthcare also satisfies human and financial resources on the
key indicators of performance. Finally, it maintains the indicators of clinical below the
accumulated rate of the hospitals (peer hospitals).
Corporate strategy of Ramsay health care
A policy has changed and varied over the past years. Most of the policies of the health
care aimed at avoiding completion. Days when the psychiatry undergoing difficulty of cost-
cutting. The main objectives of the institution changed to diversification. Ramsay, in turn,
acquires rural hospital where there exists unlimited competition. Ramsay health care bought in
places where there are no competitors to avoid competition (Allain. and Laurin 2018).

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Explanation of how the model helps in achieving the strategies of the company
Management of Ramsay health care adopts the model to enhance the accuracy of costing.
This, in turn, will enable the Institution to improve the delivery of their services and to determine
the exact costs of products and services; they will also acquire important techniques of enhancing
cost and return on project investment (Aithal and Kumar 2016).
The relationship between the process of care and costs are required in order for the
organization to target the drivers of cost. Apportioning costs by ABC categories enable the
linkage of the activities that use resources with the monetary valuation of resources. Activity-
based costing will make sure that products are correctly assigned to categories. Accounting for
the activities of care also allows the determination of comparison of cost between settings and
among cost centers (Pieters 2017). With a suitable cost system, a firm administrator can easily
recognize functional areas for the improvement of cost. The costing system has two main
requirements for ensuring that it provides the exact assessment of the costs of care and to support
the decisions of the management. Funding agencies and administrators need information that
relates to the cost incurred in the process of using the care activities. Activity-based costing
offers appropriate and reliable results for the above mentioned two requirements of costing
system. Extensive use of reliable and consistent information of cost can be used as benchmarks
as well as for management of best practices in medium and long-term care (Abu, Nor and
Rahman 2018).
Alternative management accounting tool suitable for Ramsay health care
The next best tool that the management should use is the Total quality management
(TQM). This is one of the management tools that help in integrating all the functions in different

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departments within the Institution (example are customer services, production, and marketing)
with an aim of fulfilling the requirements of the customers. Total quality is useful since it
provides a description of the organization, attitude, and attitude of the organization that tries to
provide customers with products and services that satisfy the requirement of the customers.
Ramsay health care should this type of management tools because it will increase the process of
employee engagement and this will cause improvement of the organization products. Total
quality management combines both the accounting tools and quality which reduces losses and
increases business profits (Cannavacciuolo, Illario, Ippolito and Ponsiglione 2015).
Recommendation for the implementation of ABC for Ramsay health care
Ramsay health care should apply the use of different type of costing system to help in
improving their services. The use of different type of model will enable the organization to solve
varieties of their problems (Yang 2018). This is due to the fact that ABC cannot solve all the
problems that the organization is facing. ABC is just a single tool among different types of tools
which improve and complement other tools within the management for example TQM. It
represents a tool that helps the administrators to formulate and come up with the best decision on
strategy. Management should ensure that the tools being used must complement and supplement
each other to ensure maximization of the benefits of the tools being used (Namazi 2016).
In implementing ABC to the organization to assist in achieving the set goals put in place
by the organization, the management should come up with a practical mindset. ABC only
performs as the machines being controlled by the human resources. Therefore, the organization
should recruit knowledgeable, talented individuals to interpret and use the data from ABC to
assist in decision making (Carnero 2018).

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Conclusion
Accurate measurement, as well as important summary expenses, acts as the main
necessity of cost system. The aim of the Activity-based costing is to ensure that the cost
management is in line with the goal of the care being provided. There is a perfect benefit in
putting in place cost summaries that are related to the outcomes of use of the health care
(Oseifuah 2018).
Activity-based costing offers the best approach for apportioning of health costs. ABC can
be used as reporting model and cost framework for community and facility-based care. It offers
the required method of aligning costs to patient’s outcomes and care (Patel, Goyal and Agarwal
2018). The report indicates that performing accurate costing is essential for the smooth
management of the activities of the healthcare services. Application of different costing system
to the organization is quite important as it improves the performance of the institution. ABC
helps to solve the various problems that the healthcares are facing. Examples of the healthcare
problems that the ABC can solve include the following: the larger number of the elderly that uses
the services of the healthcare and high costs of healthcare. Management should take into
consideration the advantages and limitations the management tool that they are using in the
organization.

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References
Abu, M.Y., Nor, E.M., and Rahman, M.A., 2018, April. Costing improvement of the
remanufacturing crankshaft by integrating Mahalanobis-Taguchi System and Activity-based
Costing. In IOP Conference Series: Materials Science and Engineering(Vol. 342, No. 1, p.
012006). IOP Publishing.
Aithal, P.S., VT, S. and Kumar, P.M., 2016. Analysis of ABC Model of Annual Research
Productivity using ABCD Framework.
Allain, E. and Laurin, C., 2018. Explaining implementation difficulties associated with activity-
based costing through system uses. Journal of Applied Accounting Research, (just-accepted),
pp.00-00.
Cannavacciuolo, L., Illario, M., Ippolito, A. and Ponsiglione, C., 2015. An activity-based costing
approach for detecting inefficiencies of healthcare processes. Business Process Management
Journal, 21(1), pp.55-79.
Carnero, M.C., 2018. Model for assessment of environmental responsibility in healthcare
organizations. In Encyclopedia of Information Science and Technology, Fourth Edition (pp.
3131-3143). IGI Global.

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Dwivedi, R. and Chakraborty, S., 2014. An activity-based costing model for a food processing
industry. International Journal of Innovative Research and Development, 3(12).
Etges, A.P.B.D.S., de Souza, J.S., Kliemann Neto, F.J. and Felix, E.A., 2018. A proposed
enterprise risk management model for health organizations. Journal of Risk Research, pp.1-19.
Javid, M., Hadian, M., Ghaderi, H., Ghaffari, S., and Salehi, M., 2016. Application of the
activity-based costing method for unit-cost calculation in a hospital. Global journal of health
science, 8(1), p.165.
Karaboga, D., Gorkemli, B., Ozturk, C. and Karaboga, N., 2014. A comprehensive survey:
artificial bee colony (ABC) algorithm and applications. Artificial Intelligence Review, 42(1),
pp.21-57.
Mahal, I., and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research, 31, pp.31-44.
Namazi, M., 2016. Time-driven activity-based costing: Theory, applications, and limitations.
Iranian Journal of Management Studies, 9(3), p.457.

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Oseifuah, E.K., 2018. Activity-based costing (ABC) in the public sector: benefits and challenges.
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Patel, D., Goyal, S., and Agarwal, R., 2018. E-Commerce Business Model. In Improving E-
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