Majed and Faisal are friends and partners of an elite dentistry clinic called Wide Smile Dentistry...

  
 

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Majed and Faisal are friends and partners of an elite dentistry clinic called Wide Smile Dentistry Medical Centre in Muscat. The clinic is well-known for providing two services for clients: in-clinic treatment and home-visit treatment. The clinic has established itself well in the healthcare dentistry market due to the long experience of the main dentists working in the clinic and the good home-call services they provide. Some clients complained the cost might be too high for the services offered and started shifting to other clinics which copied the Wide Smile model of services. As part of the investigation to determine the contribution that each of these services make to the overall profit and to determine the 'right' prices and costs for services offered, Faisal is convinced that the allocation of overhead costs using the traditional way may be distorting the financial data used for pricing and cost decisions. Faisal learned in a recent MBA workshop about Activity Based Costing system (ABC) and its benefits. However, Majed argues that using a single cost object for cost allocation based on direct labor hours is simpler and is effective. Both partners finally agreed to settle this argument using last year data for analysis and comparison. The following table shows the overhead costs for the year ended December 31,2020 and the selected cost drivers as suggested by Faisal: Activity Cost Pool Cost Driver Drug Treatment Surgery Orthodontics Consultation Care Rent Treatments Operations Treatments Overhead Cost Travel Cost Kilometers R.O.10,000 Reception/Customer Direct Labor Hours R.O. 25,000 Square Feet Occupied R.O. 35,000 5,000 treatments 1,500 R.O. 70,000 500 operations 400 R.O. 50,000 3,000 treatments 2,100 Appointments/Calls R.O. 12,000 2000 appointment 1,200 /calls R.O. 8,000 Units of Cost Allocation Based Total R.O. 230,000 50,000 Km 30,000 Hours In-Clinic Home- Service Visit Other Overhead Direct Labor Hours R.O. 20,000 30,000 Hours Costs* TOTAL 5,000 20,000 1200 Square Feet 900 20,000 Service 3,500 100 900 1,800 45,000 10,000 300 10,000 Other Overhead Costs includes depreciation, advertising, insurance and utilities. Faisal appointed your group to help with the decision whether to implement the ABC system in their healthcare company and asked you to prepare a report for him and his partner. Your assignment is to write a report that should include the following: Other Overhead Costs includes depreciation, advertising, insurance and utilities. Faisal appointed your group to help with the decision whether to implement the ABC system in their healthcare company and asked you to prepare a report for him and his partner. Your assignment is to write a report that should include the following: Part One: An Introduction- the use and benefits of ABC system in general and in service industry. (2 marks) Part Two: Exploring the Research (6 marks) Use the SQU online research library to look for at least three scientific journal articles published between 2000 to present to write a report on: A) The trend in using ABC in healthcare companies. B) The primary opportunities/benefits of using ABC systems in healthcare companies; and C) The challenges of introducing ABC to healthcare companies. Use examples in your explanations based on your readings when possible Note: attach a link to each article and a pdf file to your soft copy (do not print the articles). Part Three: Applying ABC Systems to Wide Smile Dentistry Medical Centre (13 marks) A) State in details what steps should be taken to implement the ABC system for the clinic. B) Apply the ABC system using the data provided by the clinic and compare results with the traditional system. C) Draw your conclusion and feedback on the results and the cost drivers selected. D) Describe how the change to ABC might be useful to Wide Smile and suggest ways for improvement. E) In what cases it would not be useful to refine the traditional cost system into an ABC system? F) identify the cost hierarchy for each of the costs listed. Part Four: Ethics Case (4 marks) The home-visit service supervisor who is also a friend of Faisal approached him when heard that the company is considering using ABC system and raised his concerns that the new costs might affect how costs appear in comparison - which could affect his bonus. After Faisal explaine the benefits of ABC, the supervisor begged Faisal to 'smooth the numbers enough' for the home-visit service because he needs his bonus for his son's brain surgery. Faisal consulted you on this matter. A) Who are the stakeholders in this situation? B) What are the ethical considerations in this situation? And C) What are Faisal's and your ethical obligation, as an accountant, to the company and to the friend? Majed and Faisal are friends and partners of an elite dentistry clinic called Wide Smile Dentistry Medical Centre in Muscat. The clinic is well-known for providing two services for clients: in-clinic treatment and home-visit treatment. The clinic has established itself well in the healthcare dentistry market due to the long experience of the main dentists working in the clinic and the good home-call services they provide. Some clients complained the cost might be too high for the services offered and started shifting to other clinics which copied the Wide Smile model of services. As part of the investigation to determine the contribution that each of these services make to the overall profit and to determine the 'right' prices and costs for services offered, Faisal is convinced that the allocation of overhead costs using the traditional way may be distorting the financial data used for pricing and cost decisions. Faisal learned in a recent MBA workshop about Activity Based Costing system (ABC) and its benefits. However, Majed argues that using a single cost object for cost allocation based on direct labor hours is simpler and is effective. Both partners finally agreed to settle this argument using last year data for analysis and comparison. The following table shows the overhead costs for the year ended December 31,2020 and the selected cost drivers as suggested by Faisal: Activity Cost Pool Cost Driver Drug Treatment Surgery Orthodontics Consultation Care Rent Treatments Operations Treatments Overhead Cost Travel Cost Kilometers R.O.10,000 Reception/Customer Direct Labor Hours R.O. 25,000 Square Feet Occupied R.O. 35,000 5,000 treatments 1,500 R.O. 70,000 500 operations 400 R.O. 50,000 3,000 treatments 2,100 Appointments/Calls R.O. 12,000 2000 appointment 1,200 /calls R.O. 8,000 Units of Cost Allocation Based Total R.O. 230,000 50,000 Km 30,000 Hours In-Clinic Home- Service Visit Other Overhead Direct Labor Hours R.O. 20,000 30,000 Hours Costs* TOTAL 5,000 20,000 1200 Square Feet 900 20,000 Service 3,500 100 900 1,800 45,000 10,000 300 10,000 Other Overhead Costs includes depreciation, advertising, insurance and utilities. Faisal appointed your group to help with the decision whether to implement the ABC system in their healthcare company and asked you to prepare a report for him and his partner. Your assignment is to write a report that should include the following: Other Overhead Costs includes depreciation, advertising, insurance and utilities. Faisal appointed your group to help with the decision whether to implement the ABC system in their healthcare company and asked you to prepare a report for him and his partner. Your assignment is to write a report that should include the following: Part One: An Introduction- the use and benefits of ABC system in general and in service industry. (2 marks) Part Two: Exploring the Research (6 marks) Use the SQU online research library to look for at least three scientific journal articles published between 2000 to present to write a report on: A) The trend in using ABC in healthcare companies. B) The primary opportunities/benefits of using ABC systems in healthcare companies; and C) The challenges of introducing ABC to healthcare companies. Use examples in your explanations based on your readings when possible Note: attach a link to each article and a pdf file to your soft copy (do not print the articles). Part Three: Applying ABC Systems to Wide Smile Dentistry Medical Centre (13 marks) A) State in details what steps should be taken to implement the ABC system for the clinic. B) Apply the ABC system using the data provided by the clinic and compare results with the traditional system. C) Draw your conclusion and feedback on the results and the cost drivers selected. D) Describe how the change to ABC might be useful to Wide Smile and suggest ways for improvement. E) In what cases it would not be useful to refine the traditional cost system into an ABC system? F) identify the cost hierarchy for each of the costs listed. Part Four: Ethics Case (4 marks) The home-visit service supervisor who is also a friend of Faisal approached him when heard that the company is considering using ABC system and raised his concerns that the new costs might affect how costs appear in comparison - which could affect his bonus. After Faisal explaine the benefits of ABC, the supervisor begged Faisal to 'smooth the numbers enough' for the home-visit service because he needs his bonus for his son's brain surgery. Faisal consulted you on this matter. A) Who are the stakeholders in this situation? B) What are the ethical considerations in this situation? And C) What are Faisal's and your ethical obligation, as an accountant, to the company and to the friend?

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Part One Introduction Activitybased costing ABC is a method of cost accounting that assigns costs to activities rather than to products or services This is in contrast to traditional costing methods s... View the full answer