Westminster retirement residence (Westmount) located in London; Ontario in Canada was a retirement home established in 1997. However, its profitability was low because of the cost accounting model they were using. The changing external environment was slowly forcing it out of business, and they sought to find out the best cost account mechanism for them to maintain their business. This essay aims at analysing the existing internal and external factors that influence the business and give recommendations on the best cost accounting method to apply for effective and efficiency cost allocation.
Helen Roswell, the administrator of Westmount noticed constraints of the profitability model and the ability of the organisation to make profits in the future. Westmount offered various services to the elderly at a standard price. Westmount was a recognised organisation and also popular. It offered high-quality services in its premises ranging from residence assisted living and independent support services to seniors in the society. A 24-hour response service was present and other amenities, ranging from recreational services to libraries and computer rooms. Its popularity led to an increased number of clients; however increased competition and changing internal and external factors were forcing it to rethink its systems. Competition was slowly increasing as many more similar houses were to be reliably established. Chelsey part retirement community, Central Park Lodge and Longworth Retirement Village are some of the competitors in the London region. The demographic trends also increased the cost constraints on the organisation.
A simple pricing model was in place as they charged all their clients a standard rate notwithstanding their specific needs. Pricing difficulties was a major challenge facing Roswell at the time. She was to figure out a way of managing and allocating the costs appropriately depending on the needs of the clients. To establish this she had to establish the exact costs of the various services they offered. It also included the cost of medical care and services required by each so as to charge them appropriately. The pricing model meant that clients with the increased diversity and number of clients these cases increased. The pricing forced an examination on the pricing model.
Westmount costing model was simple and centred on the total cost of the organisation. It divided the total costs with the number of clients and loaded an inflation factor for the coming year. This method did not accurately establish the cost needs of each. A need-oriented approach was required to account adequately for the costs of each so as to comfortable predict their maintenance costs. The assumption that the individuals in the larger rooms use more cost as compared to the other in the smaller rooms was also inaccurate. The supervisors and other staff were to be paid on an hourly basis, and this led to an inaccurate remuneration model as their work could not be quantified in terms of volume. The time spent coupled with the costs of medical care used by each are to be identified. With the realisation of these problems, Roswell decided to identify all the costs used by every individual in the organisation. With this information Roswell would comfortable utilize the available resources and also identify areas that required changes
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