The act of allocating prices at Westmount to residents and patient is fair to some extent as the total cost of running the retirement residence is divided by the total floor area or room size. The result being the base cost which is the price for a studio plus 5 per cent to account for inflation in the coming year. The cost of a studio plus the multiplier of 25 and 50 per cent are the costs of One-bed room and Two-bed room suites respectively. Therefore, the more luxurious a resident wants to live the more amounts he/she pays, which is a very good way of allocating price to suite facilities.
The culture of departmental accounting adopted by Westmount is a good costing model, for accounting purposes, which allow departments to undertake the calculation of their own expenditures. The costs that are directly traceable to a particular department are accounted for under such departments, this also allow Westmount to determine which of the departments incur more of the retirement residence expenditures.
The current costing system of Westmount retirement residence is driven by competition, in other words Westmount prices is relatively low looking at price of other residence firms in the industry. The price of the current costing system at Westmount encourages patients/customers to make their ways to Westmount retirement residence living the other options. The cost of a studio apartment at Westmount is approximately $1,245.14, which is far reasonable as compared to the other retirement home considered its competitors. The same goes for the One-bedroom and Two-bedroom apartment prices. This system though not profitable has placed Westmount in a more competitive form among others.
Though, as discussed above, the current costing model of Westmount retirement residence has some strengths/advantages, the current costing model also has some limitations/pitfalls which are discussed below:
Westmount current costing model has a problem of price differentiation to the various patients. The current costing model is allocating prices to patient base on room size, not taking into consideration the various needs of the residents. As in the case ‘however, room size and a flat rate alone shouldn’t drive the pricing system’ there are about three groups of residents in Westmount, they are: 1) those with no medical needs, 2) those with moderate medical needs and 3) those with intense medical needs. Westmount has failed to consider the varying needs of its residents using the current costing model which in the long-run will militate against its profit making ability. Ideally these costs should be segregated among patients base on their needs.
The evenly allocation of overheads by Westmount under the current costing model is practically unacceptable so to speak. This is so because Westmount knowing too well that the departments are not equal in square footage, therefore, allocating overheads equally among these department makes the current cost model to be inappropriate. In allocating overheads, it would have been appropriate if Westmount would have done it based on the square footage of the departments or based on the proportion of their total expenditures.
The current costing model used by Westmount has no system in place to account for the varying services of the organization. Westmount retirement residence has the following services to offer to its patients/residents such as: 1) Nursing and 2) Dietician services. The current costing model of Westmount does not account for these services.” Certain patients with serious medical conditions such as diabetes rely upon these services quite heavily: however, other residents never utilized the services”. If these costs are properly accounted for under the present costing model, they can be appropriated to those who make use of/utilized them and be included in their fees.