Estimation Of Clinical Laboratory Services Essay


Discuss about the Estimation of Clinical Laboratory Services.



Activity Based Costing is the most celebrated tool in managerial accounting, especially in the manufacturing sector. As the name suggests, the cost allocation under this technique is based on the relationship between the activities that the concern does and the respective products. It is an improved method over the traditional approaches of cost allocations. In this approach, the level of activity is the measure of the distribution of indirect costs, as the direct costs are already attributable to the specific activities or product. In the report under study, the company chosen for analysis is Corporate Travel Management, one of global giant corporate that customises the travel needs of businesses. This report highlights the company’s missions and objectives with its corporate strategies. The role of Activity Based Costing model in improving the management accounting and the recommendations related to the same are versed. The ABC model is incorporated to understand how it can help the corporate to achieve its corporate strategies and recommendations for the same are given in the second part of the report, based on the research findings. In the concluding section,

Any kind of activity or production or business incurs both direct and indirect costs in the process. Indirect cost is not directly attributable to any output, are required to be divided on some justified basis. Activity Based Costing has come as a saviour by judicially attributing cost based on resources used by each activity and the total cost incurred. Various bases are used as a base for distribution and are known as cost drivers, e.g. power consumed, machine setups, maintenance request, production order etc. Here in this method, the machine hours or direct labour hours are not used as a basis for allocation. It is the much-improved manner of disbursement as it’s directly linked to the extent a department or section performs an activity which generates a cost (Lee, & Kao, 2011). It is observed that if the proper ABC model costing is used then it will increase the overall outcomes and efficiency of the business at large.

Activity Based Costing model is concerned with dividing the indirect costs incurred in the production or in providing any service. Any cost is either a fixed cost or a variable cost. A similar situation is there in indirect cost. So firstly, the ABC model divides the cost incurred into two parts- fixed part and a variable part. The fixed cost is bound to be incurred irrespective of any work being done, whereas the variable cost varies with production or activity pattern. Each kind of cost is properly analysed to distinguish the different patterns of cost behaviour. Unlike the traditional methods based on machine/labour hours, the ABC model distinct the cost behaviour patterns based on volume, diversity, events and time. Based on cost behaviour pattern, the activity/cost drivers are selected which may be maintenance requests, machine setups, the power consumed, quality inspections or purchase orders, and ultimately each cost is allocated based on it (Manunen, 2010).

Due to this, the departments which are less activity oriented do not bear a high burden of costs and this ensures that both cost and time of the concern is saved in the allocation of true costs to different departments. This shows that company will increase its outcomes if proper ABC models are used.

The mission of CTM is to conduct business in a manner which is correct in the eyes of environment, community and people and striving the business sustainably. It thrives to provide the customers with fair value with utmost quality and invest in the skills of employees. It even backs several charitable institutions. It wants to get fundamentally strong by delivering maximum return on investment to clients and customise innovative practices for them (Stouthuysen, et al. 2010).

Being an eleven-time AFTA award winner for being the best corporate travel management company of Australia, the objective of the company is to further increase the client base and continue to provide the high-quality services and be in the top of the corporate travel management companies. It strives to excel at providing travel solutions to the clients and to further reduce the cost of using the latest technology (Tsai, et al.(2013).

What makes CTM different from other travel management companies are its business strategies that are core to its success. The strategies have made CTM functions flexible rather than rigid. Various strategies are being followed by the corporate, but some of the major strategies are discussed as below (Angelopoulos, & Pollalis, 2017)

Growth and service Excellency

The main motive of CTM as discussed earlier is to excel in the field of the service that they provide, i.e. managing corporate travels mainly. There is no outsourced managing team, but a localised team for better experience and ease of service utilization. They try to innovate the services to be provided as per client needs and focuses on reducing the expenditure to be made by the client. This ensures higher returns and value of expense. Travel safety is a pre-requisite in every service extended. Various mergers and acquisitions opportunities are also in the line of execution (Christopher, 2016).

It is observed that developing new tools with an understanding of client needs and implementation of smart technology globally. CTM wants to address local or regional market needs with the development of tools through localised technology centres (Corp Travel Limited)

The focus is to improvise and innovate the existing clients and non-client facing processes through internal innovation tactics. To ensure higher efficiency from the employees, the trial is to provide the staff with authority to take more decisions than past to make them more engaged and involved. This eventually will result in the better provision of services to clients (Dale, and Plunkett, 2017).

To smooth out the whole client experience, CTM is trying to optimise supplier performance by demonstrating the higher value of self in the whole supply chain (Fagnant, and Kockelman, 2014).

More emphasis is to be powered by the staff and employee team in terms of education and training to develop and retain them. To maintain harmony, various cultures and diversities are to be comprised in the entity’s environment. This will work favourably in the service that will be served to the clients (Ganorkar, Lakhe, & Agrawal, 2018).

The question is whether ABC model will assist in achieving the strategies of the concern or not. As per the extract of the reportable segment taken from the Annual Report of 2015 of CTM, it is evident that the company has divided the segments on geographical basis (New Zealand and Australia; North America; Asia; Europe; Other) and not on the kind of service extended, as the company also provide travel solutions for leisure, sports, events etc. other than business ones. The kind of reporting that company has followed does not state the different types of travel solutions provided in each geographical area. The total distribution of costs is based on the resources used by each geographical location based on the straight line. Although ABC model is much preferred for the manufacturing sector, in the case of service industry like CTM, this model can help to provide a better understanding of the actual performance at each kind travel type in each geographical area (Gerwin, Norinsky, & Tolwani, 2018).

In the kind of disbursement done by CTM, the cost allocation is not proper and misguiding as there are no references to cost with the level of service provided (Lee, & Kao, 2011). The allocation is based on the total amount of installation and not the basis of the actual run. This will even help in attaining the strategy of cost reduction (Hofmann, & Bosshard, 2017).

As discussed before, by using ABC technique the, the cost related to each kind of travel managed shall be first bifurcated into the fixed and variable element. Fixed cost shall be the unavoidable expenditure and the variable part shall contain the output related costs. After doing the bifurcation, CTM shall understand the cost behaviour and mark cost drivers. Based on those cost drivers, the indirect cost shall be allocated to each department (Hsieh, & Lin, (2014).

As it’s evident that CTM is not following Activity Based Costing model, it’s suggested to adopt the same by separately analysing the different kinds of services offered in every geographical location. This will help CTM to get an overall idea of all the services that consume the resources and add to cost occurrence. By having a clear understanding of all the services, a base will get ready among which the costs are to be divided. For this, the client list should also be updated (Keehan, et al. 2015).

Due to change in the method of costing, the work process for the staff shall also undergo some changes. This will call for some enrage in them. To avoid it, the management should provide the staff with a complete brief about the method and the way it shall be followed. Presentations should be made and communicated clearly to the employees. Accountants should be trained according to the new procedure and the queries should be invited.

The ABC model should surely be implemented and followed, but with proper understanding and clarity. Feedbacks should be promoted from staff for understanding the scope of improvements or the areas of errors (Mouseli, et al. 2017).

Recommendation for the Alternative accounting model

According to the analysis of the strategies and mission of CTM, TOTAL QUALITY MANAGEMENT is the most appropriate management accounting tool that can be followed. In this technique, both employees and management join hands to create an organisation whose main motive is to make continued efforts to maintain the customer base and increase it by maintaining customer loyalty and ensuring maximum customer satisfaction. The goal of profit maximisation comes after customer satisfaction in this kind of technique. This technique is also known with the name PDCA cycle. PDCA refers to Plan, Do, Check and Act (Zhuang, & Chang, 2017).

In the planning phase, the employees and management identify the customer needs and the problems faced by them and try to develop a sustainable but flexible plan to overcome the issues and provide high-quality services. After the planning is done, the actual implementation of the plan is done in doing phase. The resources are utilised, and output is given. In the checking step, monitoring is done to find the deficit in the output provision from the desired level. In the final phase, the employees note down their actions and results, perform for the deficiencies and boost themselves for the future course of actions (Mouseli, et al. 2017).


After analysing all the details of the ABC model and alternative methods which could be used, it could be inferred that the role of Activity Based Costing model is to improve the management accounting of the costing of the business. However, there are several other options which could be undertaken by Corp Travel Company to increase the recording and accounting of its cost and expenses. The Corp travel company could also use TOTAL QUALITY MANAGEMENT technique as cost accounting method as it i is the most appropriate management accounting tool that can be followed.


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