Traditional cost accounting has been based on allocating a subjective or calculated range of indirect expenses to direct costs. Activity Based Costing (ABC) offers an alternative approach. Much of the textbook work on ABC refers to examples from large-scale manufacturing, yet according to the UK government Statistics Office[1] small and medium–sized enterprises (fewer than 250 employees) account for 99.9 per cent of all enterprises in the UK private sector, whilst representing 59.8 per cent of employment and 49.0 per cent of turnover. The UK services industries account for around 75% of total value–added in the UK[2], while the Public Sector accounts for about 45% of total UK spending.
Required:
Discuss how a small UK health-sector service provider might use ABC to (a) produce ‘product costs’ for services, and to (b) evaluate the internal efficiency, quality and profitability per product or service line. Both benefits and drawbacks must be considered.
Your answer must be supported by reference to relevant literature, logical argument, and MUST include worked examples to illustrate your arguments. All reference to literature must be referenced in Harvard Style. The validity and reliability of all literature must be considered except where its source is a peer-reviewed journal. The literature you refer to does not need to be about small UK health-sector service providers: you may find journal articles from other countries, or about non-health-sector small service providers, or articles about large enterprises. Such articles might help you to discuss applying the principles of ABC from one service organisation to another, from one country to another, or to discuss differences between large and small organisations.
Your work must be submitted to Turnitin on Blackboard in a Word document. Only one document may be submitted, any work in Excel or other software must be copied and pasted into your Word document.
Appendices are limited to three pages and MUST be referred to in the body of the essay.
Word limit: 2500 (not including references section or appendices)