Read the case below and answer the questions that follow: REAL LIFE CASE Hyde and Partners is a medical practice in Gawler, South Australia. The practice offers a wide range of services, primarily in the area of diagnosis and first-line treatment. The practice’s accounting system is used solely for billing patients. There is no system for estimating the cost of services. The partners do not know what it costs to treat an ear infection or to remove a skin lesion. The practice bases service prices on the Medicare rebate set by the Commonwealth Government, so there is no need for cost-based pricing. There is little point in assessing individual service profitability, since partners have no say over service mix. As general practitioners, they are not able to service only those patients requiring the removal of skin lesions or those patients with fractured bones. For planning and controlling costs, it makes more sense to focus on the number of patients and the number of consulting sessions as key cost drivers, rather than service costs. All services are consumed as produced, so there is no requirement to value inventory.
[Source: Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H. (2018), Management Accounting Information for Creating and Managing Value, 8th ed., McGraw-Hill.] Using the above real-life case study, answer the following questions: a) There is no system for estimating the cost of services, so does this mean Hyde and Partners is poorly managed? Explain. (3 marks) b) Discuss the benefits of having a service costing system for Hyde and Partners (3 marks) c) The owners are now considering to have a service costing system. Would you suggest the company use the traditional indirect cost allocation method or ABC? Justify your answer. (4 marks) d) Assume the company will use departmental overhead rates as a start. Identify any 2 relevant departments, then suggest and justify a cost driver for the allocation of the indirect costs of each department. (5 marks) “Maximum 1500 words.”