Question

Choose a local service business with which you are familiar - do not choose a retail store or manufacturer. It can be where you work or whose services you have used. You should think about it in a pre-COVID setting. Please create a thread using your first and last name, and respond to the following: 1. Describe the activities involved in its service process (you should include activities you can see and those you cannot). Your list should include between 8 - 12 activities. 2. Identify what costs would be incurred for each activity. 3. For the owner, would you recommend using a company-wide OH rate, orja department rate, or ABC? Provide reasons for the method you choose

Answer 1

The service industry chosen is Private Hospital

1 and 2. The activities involved in its service and its costs are:

· Registration and admission of the patients (In patient)- Staff cost and admission cost

· Issue of tokens to outpatients ( for consultation)- Staff cost

· Attending outpatients by Doctors for consultation – Doctor salary

· Giving room service to outpatients who are admitted – Staff cost

· Visit of special doctors – Doctor visiting charges

· Issue of medicines to Patients based on prescription after consultation- Staff cost

· Special facilities charges like ICU, Operation theatre- All cost of providing such facilities

· Laboratory testing charges – Lab consumables

3. Activity Based Costing is recommended due to the following reasons

· Helps in accurate product/service costing since cost are allocated based on rational basis like activities consumed

· Helps in accurate product/service pricing due to accurate product costing

· Helps in elimination of non value adding activities since it needs study of activities and how much value they add to final product/service

· Helps in achieving profitablity targets

· Helps in reliable decision making like continue or discontinue of product or service lines