# Westmount Retirement Residence Case

Topics: Variable cost, Costs, Mathematics Pages: 8 (1502 words) Published: October 25, 2011
Financial Management
Midterm Assessment
Westmount Retirement Residence Case.

Executive Summary of my Conclusions:3
Present System:3
Recommended System:3
Recommendation 1:3
Recommendation 2:3
Main Report:4
- Question 14
- Question 24
- Question 35
- Question 45
Exhibits7
Exhibit 1:7
Exhibit 2:7
Exhibit 4:8
Exhibit: 58
Exhibit: 69
Exhibit: 710
Exhibit :813
References /Bibliography15

Executive Summary of my Conclusions:

Present System:

The Westmount Retirement Residence (WRR) is calculating the cost per resident by dividing the total costs by number of residents. This number is then multiplied by inflation of 5 to 8 percent to bring the estimated costs for the coming year. This is the base cost for Studio apartments, and then the cost for the one bed room and two bed rooms are calculated by adding 25 % and 50% on the base cost. So there was no system to calculate the varying service need required by different residents. The net profit in year 2005 is 2.28%, very low net profit looking at the markets of the same industries. (See Exhibit 1)

Recommended System:

In the present system, all costs are considered as “fixed costs”. I feel, the costing can be done on activity based costing (ABC) (Eddie McLaney, Peter Atrill, 2010::400) (here in this case it is service based, need based). for Support services. Food services, Laundry service can be done by direct costing (variable costing) depends on the consumption of the resident, but this may take again a lot of expenditure to maintains individual costing and billing. Activity- based pricing (ABP) is a pricing method that combines market research data with cost  accounting information to  establish prices for products  and services that result in designed profits .(internet resources)

Recommendation 1:

The net profit must be at least 15% as net profits in the hospitality or caretaking industry in the market is around 15-25 %. With the future of this industry is growing, and a more than decade well established WRR can make more than 15% net profits by calculating the right costs per the resident. I recommend calculating ad dividing the cost as below.

1) 100% of the total costs of the Food services, Laundry, Recreation, facility, Housekeeping, General Admin, Fixed operative expenses, Management fees, Reserve assessment placement should be applied divided by the room size. 2) The costs of support service (Nursing care service, Dietician, Attendant care) should be applied on hourly basis for three divided groups on the demands of their needs.

Then add a calculated inflation (around 8% inflation) (add 2% more than government declared inflation) and mark-up of 18% on the costs to get a 15% of net profit. The calculations are as shown in exhibit 7.

Recommendation 2:

I recommend calculating ad dividing the cost as below.
1) 50% of the total costs of the Laundry, Recreation, facility, Housekeeping, General Admin, Fixed operative expenses, Management fees, Reserve assessment placement should be applied to all residents regardless of the care needs or room size. 2) Remain 50% of the above costs should be applied based on the suite size or square footage. This will also take care if couple is sharing the single bed room 3) The costs of support service (Nursing care service, Dietician, Attendant care) should be applied on hourly basis for three divided groups on the demands of their needs.

Then add a calculated inflation (around 8% inflation) (add 2% more than government declared inflation) and mark-up of 18% on the costs to get a 15% of net profit. The calculations are as shown in exhibit 8.

Main Report:

As explained in my recommendations above, we must build a full transparent costing model to know the exact pricing. There are many costs which can’t be taken as fixed costs and dividing to each and every...