Cost Concepts

This week you have been examining a number of cost concepts, including costing and cost allocation. Activity-based costing, for example, is a method that is becoming more prevalent and provides managers with cost information that is helpful for strategic and other decisions.

Bring to mind an organization with which you are familiar. Do you know what type of costing it utilizes? How does it allocate costs across different divisions or products?

For this Discussion, you will consider how cost concepts may be applied within a specific health care setting.

To prepare for this Discussion:

Review the Learning Resources on cost allocation methods.

Select a particular type of health care setting to consider for this Discussion. The type of organization you choose may be one with which you are already familiar, or one that you would like to learn more about. Each member of your group will need to select a different type of organization (e.g., large academic hospital, physician-owned practice, retail pharmacy/clinic, home health care agency).

Post by Day 2 the type of health care setting you will focus on for this Discussion.

Continue to prepare by considering the following questions with your selected setting in mind:

How does activity-based costing differ from traditional costing?

If this organization were to use traditional costing, how would you recommend it allocate costs? Why?

Would you recommend that this organization use traditional costing, activity-based costing, or both? Why?

Post by Day 4 a response to the following:

Explain how activity-based costing differs from traditional costing. How and why is this distinction significant for the health care setting you have selected?

If this organization were to use traditional costing, how would you recommend it allocate costs (direct, reciprocal, or step-down)? Offer a rationale for your answer.

In summary, would you recommend that this type of organization use traditional costing, activity-based costing, or both? Explain and justify your answer.

Reference

Website: Healthcare Financial Pulse-Improving Performance, Leading Change

http://www.hfma.org/pulse

You can also use your own resources

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