ACT502 Management Accounting

Published : 31-Aug,2021 | Views : 10

Question:

ANH has recently been approached by a major US-based charity which has proposed to fund ANH $1,125 for each patient treated at Abuja Hospital (one of ANH’s largest hospitals).
Assuming that ANH accepts this proposal, You will need to:
1) Calculate the break-even number of patients for Abuja Hospital, assuming that no other funding will be received.
To address the requirement, follow the steps below:
a. classify costs into variable and fixed
b. calculate the variable costs per patient,
c. calculate the contribution per patient
d. calculate the fixed costs (to the nearest dollar)
e. calculate the break-even number of patients for Abuja Hospital
f. calculate the current hospital capacity
2) Comment on the break-even point compared to the hospital’s capacity

Jet has been asked to prepare an analysis using Porter’s value chain to assist management in assessing Pizza Gourmet’s competitive advantage.
Specifically, she has been asked to:
1. Prepare a value chain analysis for Pizza Gourmet and categorise each activity according to Porter’s value chain. (Classify these per the activity types/value chain element provided)

Assess whether each activity provided is a key element of Pizza Gourmet’s competitive advantage. (Assess whether each activity is a key element by indicating “Yes”or “No”)
3. Evaluate which activities Pizza Gourmet could outsource to achieve cost reduction.(Indicate whether each activity could be outsourced by indicating “Yes”or “No”and providing a brief explanation).

Answer:

a. Classification of cost into variable and fixed

Fixed cost

Salary payable to doctor, nurses and admin staff
20% of fixed cost salary
Charges for linen services

Variable cost

Cost of meal
Medical supplies
Surgical equipment
Salary payable to Anaesthetists
20% of variable cost salary

b. Computation of variable cost per patient

Particulars	Amount
Cost of meal	$225.00
Medical supplies	$250.00
Surgical equipment	$100.00
Salary payable to Anaesthetists	$ 22.50
20% of variable cost salary	$4.50
Total variable cost	$602.00

c. Computation of contribution per patient

=Revenue received for each patient - variable cost for each patient

=$1125-$602

=$523

d. Computation of fixed cost

Particulars	$156,000.00	Amount
Salary of Administration assistants	$300523	$46,800.00
Salary of Doctors	$750524	$156,000.00
Salary of Nurses	$450527	$163,800.00
Linen cost	$255250	$65,000.00

e. Computation of breakeven patients

Fixed cost/Contribution per patient

=$798200/523

=1527 patients (approx.)

f. Computation of current capacity of hospital

= (no. of days in year/ days required to treat patient) * bed capacity of hospital

= (365/14)*50

=1304 Patients

Comment on the break-even point in comparison to hospital capacity

The proposal provided by US-based charity is not feasible because as per present capacity Abuja hospital will not even be able to achieve breakeven capacity. It is because the present capacity of the hospital is to treat 1304 patients while as per proposal breakeven will be attained at 1527 patients who show the issue of loss in business as they are not in a position to recover all fixed costs.

1. Value chain analysis

Primary activities

Inbound logistics

Cooking and mixture of core ingredients within restaurants.

Developing new products.

Receiving key ingredients into a central hub.

Operations

Preparing and cooking pizzas.

Taking customer orders

Serving pizzas at customer tables

Outbound logistics

Delivering pizza to customer’s residence

Storing key ingredients in central hub

Transferring ingredients to restaurants

Marketing and sales

Creating brochures

Providing nutritional information of food to customers.

Running TV, newspaper and radio campaigns.

Service and support

Taking customer orders

Replenishing store supplies

Support activities

Administrative infrastructure

Developing strategy

Maintaining restaurant facilities

Performing finance functions

Performing reporting functions

HR management

Recruiting staff, including e-recruitment

Providing training programs for staff and franchisees.

Technology development

Developing advanced tracking system

Developing website and potential mobile applications

Procurement

Negotiating access to premises for company and franchise restaurants

Negotiating supply arrangements with ingredient suppliers

Negotiating supply arrangements with packaging suppliers

By considering value chain analysis of Pizza Gourmet, it can be said that primary activities are related to customers such as preparing food, taking orders, marketing and storing and transferring key ingredients. These activities are essential to conducting as without this they will not be able to serve customers (Alhabeeb, 2012). These activities are providing value addition directly to production procedures for the business. Support activities assist Pizza Gourmet in strengthening their base and providing competitive advantage through making improvement in technology and innovation in their product and services.

Assessment of activities in the form of competitive advantage

Value chain element	Activity	Activity providing competitive advantage or not	Justification
Inbound logistics	Cooking and mixing of core ingredients within restaurants	Yes	This activity will assist in assuring taste and quality in providing products and services which will directly influence satisfaction level of customers.
	Receiving key ingredients into central hub	Yes	If fresh and quality ingredients will not be available in a timely manner their core activities of business will be significantly affected (Goetsch and Davis, 2014).
	Developing new products	Yes	Customer prefers restaurants providing new products, especially in fast food industry. Thus it is important to make innovation in products.
Operations	Preparing and cooking pizzas	Yes	This activity will assist in assuring taste and quality in providing products and services which will directly influence satisfaction level of customers.
	Taking customer orders	Yes	To assist customers by providing them better services.
	Serving pizzas at customer tables	No	It is a general activity and will not make value addition to business as management can also implement the option of self-service.
Outbound logistics	Delivering pizza to customer’s residence	Yes	With this customer will have takeaway and delivery option and have a more convenient way for giving orders (Christopher, 2016).
	Storing key ingredients in central hub	Yes	This activity will ensure that they have sufficient stock of ingredients to serve customers.
	Transferring ingredients to restaurants	Yes	With this, available ingredients can be used in an optimum manner by providing it at restaurants as per their requirement.
Marketing and sales	Creating brochures	Yes	This will attract maximum potential customers.
	Providing nutritional information of food to customers	Yes	By this Pizza, Gourmet will make aware customers that their menu options are healthy as well as tasty.
	Running TV, newspaper and radio campaigns	Yes	With this, Pizza Gourmet can reach to a large number of audience to promote provided products and services to them (Monczka, 2015).
	Developing and setting up new restaurants	Yes	This activity is important for the expansion of business to maximise market share and profitability.
Service and support	Replenishing store supplies	Yes	Refilling is to be done in a timely manner to prevent stock out and inconvenience to the cooking team (West, Ford and Ibrahim, 2015).
Administrative infrastructure	Developing strategy	Yes	The activity assists in managing the operations with effectiveness.
	Maintaining restaurant facilities	Yes	This is regular activity necessary to conduct as the ambience of restaurant affect frequency of customer visit.
	Performing finance functions	Yes	For collection and allocation of funds in an optimum manner to make a reduction in finance cost and maximise returns (Kaplan and Atkinson, 2015).
	Performing reporting functions	Yes	To record financial and non-financial facts for future decision making.
HR management	Providing training programs for staff and franchisees	Yes	To strengthen workforce to improve the productivity of business.
HR management	Recruiting staff, including e-recruitment	Yes	To recruit qualified individuals to strengthen the workforce.
Technology development	Developing advanced tracking system	Yes	For effective controlling and planning business activities.
Technology development	Developing website and potential mobile applications	Yes	To develop an effective operating system to provide better services to the customer and developing control over business activities (Otley and Emmanuel, 2013).
Procurement	Negotiating access to premises and franchise	Yes	To ensure assets are purchased at fair value by accepting lower quotation with the highest quality.
	Negotiating supply arrangements with ingredient suppliers	Yes	To ensure required ingredients are purchased at the lowest value with the highest quality.
	Negotiating supply arrangements with packaging suppliers	Yes	To ensure required packing materials are purchased at the lowest value with the highest quality.

Activities to be outsourced to attain cost advantage

Value chain element	Activity	Activity providing competitive advantage or not	Justification
Inbound logistics	Cooking and mixture of core ingredients within restaurants	No	This is the primary activity of business and has to be done by in-house staff.
	Receiving key ingredients into central hub	No	This is primary activity and has to be done by daily staff as per overall requirements of pizza gourmet
	Developing new products	No	Due to secrecy and intense competition, this task has to be done in-house chefs as per changing taste and preference of customers.
Operations	Preparing and cooking pizzas	No	This is the primary activity of business and has to be done by in-house staff as immediate services are required.
	Taking customer orders	No	This is a basic activity to be performed on an immediate basis so cannot be outsourced.
	Serving pizzas at customer tables	No	This is a basic activity to be performed on an immediate basis so cannot be outsourced (Fullerton, Kennedy and Widener, 2013).
Outbound logistics	Delivering pizza to customer’s residence	Yes	This work can be given to delivering agencies to prevent capital cost like purchasing delivering vehicles.
	Storing key ingredients in central hub	No	This is primary activity and has to be done by daily staff as per overall requirements of pizza gourmet
	Transferring ingredients to restaurants	No	It can be managed better by existing staff as they know about demand and have daily communications with available resources without occurring additional costs.
Marketing and sales	Creating brochures	Yes	Efficient agencies can be hired for this task for the preparation of brochures at minimum cost.
	Providing nutritional information of food to customers	Yes	Instead of hiring permanent staff this job can be outsourced to a nutritionist.
	Running TV, newspaper and radio campaigns	Yes	This job can be provided to advertising agencies to effective develop promotional content to broadcast.
	Developing and setting up new restaurants	Yes	This task can be outsourced to experts to assure that new restaurant is a profitable venture.
Service and support	Replenishing store supplies	No	This is primary activity and has to be done by daily staff as per overall requirements of pizza gourmet
Administrative infrastructure	Developing strategy	No	It can be managed better by existing staff as they know about demand and have daily communications with available resources without occurring additional costs (Nielsen, Mitchell and Nørreklit, 2015).
	Maintaining restaurant facilities	No	This is primary activity and has to be done by daily staff as per overall requirements of pizza gourmet
	Performing finance functions	No	Due to the involvement of confidential information, this task cannot be outsourced.
	Performing reporting functions	No	Due to the involvement of confidential information, this task cannot be outsourced.
HR management	Providing training programs for staff and franchisees	Yes	This task will be outsourced to hire experts to train employees of the organisation.
HR management	Recruiting staff, including e-recruitment	Yes	This task will be outsourced to recruitment agencies to recruit qualified individuals to strengthen workforce (Christensen and Kent, 2015).
Technology development	Developing advanced tracking system	Yes	Entire set up of developing software is not feasible so it must be outsourced to attain cost advantage.
Technology development	Developing website and potential mobile applications	Yes	Entire set up of developing website and application is not feasible so it must be outsourced to attain cost advantage.
Procurement	Negotiating access to premises and franchise	No	Huge amount is involved, so it is to be done by central management
	Negotiating supply arrangements with ingredient suppliers	Yes	It can be outsourced to to wholesale suppliers to minimise the cost of ingredients.
	Negotiating supply arrangements with packaging suppliers	Yes	It can be outsourced to to agencies to minimise the cost of packing material (Tjader Vargas and Gao, 2014).

References

Alhabeeb, M.J., 2012. Break?Even Analysis. Mathematical Finance, pp.247-273.

Goetsch, D.L. and Davis, S.B., 2014. Quality management for organisational excellence. Upper Saddle River, NJ: Pearson.

Christopher, M., 2016. Logistics & supply chain management. Pearson UK.

Monczka, R.M., 2015. Purchasing and supply chain management. Cengage Learning.

West, D., Ford, J. and Ibrahim, E., 2015. Strategic marketing: creating competitive advantage. Oxford University Press.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control. Springer.

Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control practices in a lean manufacturing environment. Accounting, Organisations and Society, 38(1), pp.50-71.

Nielsen, L.B., Mitchell, F. and Nørreklit, H., 2015, March. Management accounting and decision making: Two case studies of outsourcing. In Accounting Forum (Vol. 39, No. 1, pp. 64-82). Elsevier.

Christensen, J. and Kent, P., 2015. The decision to outsource risk management services. Accounting & Finance.

Tjader, Y., Vargas, L.G. and Gao, N., 2014. Firm-level outsourcing decision making: A balanced scorecard-based analytic network process model. International Journal of Production Economics, 147, pp.614-623.