Westmount Retirement Residence Cos System Analysis

Topics: Costs, Price, Variable cost Pages: 10 (2904 words) Published: October 16, 2011
New Costing System and Pricing recommendation
Financial Management
MBA in Sustainability and Leadership
Robert Kennedy College
Executive Summary_____________________________________________________

Main Report______________________________________________________

Exhibit A___________________________________________________________

Exhibit B___________________________________________________________

Exhibit C___________________________________________________________

Exhibit D___________________________________________________________

Exhibit E___________________________________________________________


Westmount is a 125-unit Retirement Residence established in 1997 that offers both assisted living and independent supportive living options to seniors in the community. After a history of high occupancy rates, stable clientele and profitable operations the establishment is now going through a period of low profitability. After analyzing the costing system of the company and designing a new pricing model with the purpose of remaining as profitable as in the past while continuing to attract new clients; the main findings were: Strengths and limitations of the current costing model o Simplicity – Very easy to calculate and distribute cost between residents and apartments (strength) o Out of date – It did not consider the evolution in the patient´s demands through time – In the past, all the patients required similar services, but nowadays clients have different demands (limitation) o It does not take into account the cost drivers (which are the most relevant activities that generate costs). (limitation) o It does not allow establishing a pricing system that takes into account the required patient care or a just price according to the three suite options and number of occupants per suite. (limitation) 2005 Poor results were due to:

o The retirement center does not have differentiated pricing system for patients with medium and intense medical needs. o Cost of medium and intense medical needs patients represented 88% of the total cost in supportive services o There is no extra charge for spouse in bedroom patients

o The price charged for two bedroom suites does not contemplate the incidence in costs of the double occupancy. Considering the existing pricing system it would be more consistent to charge for two residents minus a commercial discount. o Had all the items above been considered an additional 7% revenue and net profit could have been obtained by the company (see Exhibit E) New costs per patient:

o The table below shows the new costs per patient taking into account the three suite options and the three levels of required patient care. (See Exhibits A and B) It was also detached the additional cost of the spouse to be considered as base for the pricing in the cases of the one bedroom suites. 4

Costs per Patient
Total Cost Studio
No medical Need $ 13.828,83
Medium Medical Need $ 16.382,15
High Medical Need $ 18.915,26 One Bedroom
No medical Need $ 15.375,99
Medium Medical Need $ 17.929,31
High Medical Need $ 20.462,41 Additional Spouse $ 6.520,52 Two Bedroom (two residents) No medical Need $ 23.443,66
Medium Medical Need $ 25.996,98
High Medical Need $ 28.530,09
The table below shows the suggested prices for 2006 considering the three suite options and three levels of required patient care. It also suggests additional price that should be charged for spouse in the case of one bedroom suite. Prices consider 5% estimated inflation and 15% mark up on cost. (see Exhibit C) Table of Annual Prices 2006 Total Studio Price

No medical Need $16.698,31
Medium Medical Need $19.781,45
High Medical Need $22.840,17 One Bedroom
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