Activity Based Costing and Healthscope Limited Analysis

This report delves into the application of Activity Based Costing (ABC) within Healthscope Limited, a healthcare provider. It begins with an executive summary highlighting the challenges Healthscope faces in managing costs and the potential of ABC to improve service delivery and resource allocation. The introduction outlines the increasing healthcare costs and the need for a cost-effective accounting system. The report then explains the features of ABC, emphasizing its focus on cost drivers and its advantages over traditional costing methods. It explores how ABC aligns with Healthscope's mission and corporate strategies, providing recommendations for successful implementation, including staff training and benchmarking. Furthermore, the report suggests the Six Sigma methodology as an appropriate management accounting tool and concludes by reiterating the benefits of ABC in enhancing decision-making and transparency. The report also includes references to support its findings.

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ACTIVITY BASED COSTING
By (Student’s Name)
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ACTIVITITY BASED COSTING
Table of Contents
Executive summary.....................................................................................................................................3
Introduction.................................................................................................................................................4
Explanation of the Activity Based Costing and Its feature...........................................................................5
Explanation of how Activity based costing model aligns with strategies and goals of the Healthscope
Limited.........................................................................................................................................................7
Objectives and Mission of Healthscope Limited......................................................................................7
Corporate strategies of the Healthscope Limited....................................................................................7
How Activity-based costing support the strategies Healthscope Limited................................................8
Recommendations for the implementation of an Activity-based model for Healthscope...........................9
Management accounting tool appropriate for Healthscope Limited..........................................................9
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11

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Executive summary
This paper examines how Healthscope Limited can apply the use of ABC system to
improve their service delivery. Though choosing a suitable accounting system has been
challenged for the managers of the Healthscope Limited. There is the need for the organization
to develop a cost-effective model that will help solve the problem of costs. ABC model will also
assist the management to efficiently use the scarce resources as well as savings with the
continuous increase in the healthcare costs. Therefore, the core objective of this paper is to
explain how the Healthscope Limited can successfully implement the Activity-based costing.
The paper also outlines appropriate recommendation necessary for the implementation
process of the approach in the discussion. It is stated that creating a good relationship as well
as the provision of the relevant training process of the entire staff will facilitate the
implementation of the ABC system. The paper also suggests the alternative models that can be
used instead and together with the ABC system with the intention of improving the
performance regarding service delivery to institution’s Customers.
Introduction
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

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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.

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Explanation of the Activity Based Costing and Its feature
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

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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
Objectives and Mission of 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).
Corporate strategies of the Healthscope Limited
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

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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).
How Activity-based costing support the strategies Healthscope Limited
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

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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.
Recommendations for the implementation of an Activity-based model
for Healthscope
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).

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Management accounting tool appropriate for Healthscope Limited
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

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profitability of the firm. The management should apply other management tools in order to
facilitate the efficiency of the Activity-based costing system.

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