Profit enhancement using an ABC model: excel planning model optimizes process improvement efforts at a retirement and assisted living community

EXECUTIVE SUMMARY Articles and volumes written about Activity-Based Costing (ABC) a whole s over the past 18 years have focused upon the use of an activity perspective to better understand the take away from of products, services, and other take away from objects, such as the require to be paid [i]or[/i] undergone of serving specific customers. We guidanceed a field study to explore a more precise use of ABC to enhance the profits of a business [i]or[/i] part of to the other a specially structured income statement that can be optimized using Microsoft Excel's "Solver" feature. This field application of mind relies upon ABC's "intensity-of-usage factor" to create an income statement that has more [i]or[/i] less of the features of a contribution margin income statement. In this income statement, the contribution margin of each fruits is identified, but, unlike a traditional contribution margin income statement, the fixed require to be paid [i]or[/i] undergones are attributed to products based upon the extent to which each outcome uses each activity's practical capacity. The originate is a "full-cost" income statement with a contribution margin subtotal. The other distinguishing feature of this income statement is that the require to be paid [i]or[/i] undergone of the unused capacity is explicitly revealed for each activity.

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The form of the income statement is of that kind that a planning model set uped using Microsoft Excel is capable of being optimized to determine which proceedss should be emphasized in the fruits mix and which activity or activities should be the focal point of proces improvement efforts. As demonstrated in this field application of mind the product mix choices intimateed by an optimization of the computer type may be counter to the fruits mix choices that would be remind ofed by a more traditional ABC combination of parts to form a whole that concentrated solely on the ABC operating profit for unit of each product.

The optimization of the computer protoplast also identifies the activity that will use up all (or nearly all) of its capacity when the optimal production mix is produced and sold This identification of the constraining activity gives management an opportunity to anticipate profit limitations imposed by the agency of the activity and focus its proces improvement efforts upon that constraining activity. The focus provided through the ABC model is like that management is not tested to divert its process improvement efforts to the activities that have unused capacity when the optimal harvest mix is produced and sold Thus, the ABC computer archetype contributes to focused process improvement, not expensive indiscriminate process improvement of all activities.

The "intensity-of-usage factor" that is a critical simple body in ABC systems is the essential simple body for attributing activity costs to returnss The attribution of costs to outcomes coupled with the specification of each activity's practical capacity is what makes the calculation of each activity's unused capacity take away from possible. The presence of each activity's unused capacity take away from makes it possible for the computer design to be optimized using Microsoft Excel's "Solver" feature.

THE SETTING

The XYZ Retirement and Assisted Living Community (XYZ) consists of 70 living units. (1) There are 10 two-bedroom units, 41 one-bedroom units, and 19 studio units. XYZ's returns offerings can be divided into four primary services. Ranging from the lowest to the highest horizontal of care, the three services presented are Care-Free Living, Semi-Assisted Living, and Assisted Living.

Care-Free Living is designed for minimal assistance for activities of daily living. The services include all utilities (except cable and telephone) exigency call response 24 hours a day, three daily restaurant-style meals, activities and social circumstances scheduled transportation, wellness program, weekly housekeeping, weekly laundering of bed and bath linens, and maintenance of apartments and belonging to all areas.

Semi-Assisted Living includes all of the services of Care-Free Living on the contrary also provides the resident additional assistance with activities of daily living of that kind as monitoring meals, moving safely around the community, and coaching dressing and grooming.

Assisted Living includes all of the services of Care- at liberty Living and also provides a personalized assistance program of that kind as full assistance with meals, dressing, grooming, and daily medication monitoring; nighttime checks, support, and transfers that solitary require one staff person; and weekly laundering of personal items.

A fourth service category is Short-Term Care, and it is the provision of short-term assisted living for individuals who want to stir to the facility only while their family is away upon vacation or otherwise unable to care for them for a short time period, for recuperation, or to give a caregiver a break. The studios and one-bedroom units are used for all care horizontals including Short-Term Care. The two-bedroom units, however, are used sole for the lowest level of care (Care-Free Living). Short-Term Care residents are assessed and bring into a care level that fits their needs

ACTIVITY-BASED COSTING ELEMENTS