You have been hired in the finance department at a large, metropolitan for-profit hospital. Your duties are very important to the entire hospital in terms of financing operating costs. Additionally,...

Importance of cost accounting and role of financial management in
health care industry
In today’s economic environment, financial management is very important area of
concern for every organization. Financialmanagement serves many purposes of an organization
which includes setting up prices to beat the competitors and earn required return on the funds
invested, managing and utilizing resources efficiently and effectively, to establish appropriate
standards for managers and employees, providing supply chain management system etc. (Keven
Williams, 2009)
Role of a senior finance manager is very crucial for the success of an organization; senior
finance manager helps an organization in taking strategic decisions. In order to take strategic
decisions an organization has to segregate its relevant and i
elevant revenue and expenses. In
order to determine whether a particular item is relevant or i
elevant management accountant
uses its knowledge of the basic concepts of management accounting. Only relevant items shall be
considered while taking any decision.(Keven Williams, 2009)
Complexity of cost behavior in health care organization
Hospitals use all the cost information to establish rates which it can apply to the patients.
This practice has resulted in compilation of various rates, but till time there is no one single rate
that can be measured and applied to all the patients i.e. a rate which remain constant for all the
patients. Different measures are appropriate for different type of customers as the needs of each
patient is different, thus finding a uniform rate of method for each patient is the biggest challenge
faced by the health care industry.(Ward Marc, 1999)
Different patients have different requirements which make it difficult to make a standard
cost format even though the health care industry has found many ways to deal with it, activity
ased costing is an appropriate method to deal with all the problems. (Activity based costing for
health care organization)
The key elements of activity based costing refer to the cost drivers which are allocated on
the overheads. The various types of cost drivers are number of patients, number of hours, number
of beds, number of ambulance, etc. and the overheads are electricity, royalty, stores(medicine
handling charges) etc. are the types of overheads on which these cost drivers are allocated.
(Activity based costing for health care organization).(Ward Marc, 1999)
Importance of cost classification and allocation in case of health
care industry
In health care industry it is very important to allocate the different cost accurately,
ecause the costs in case of health care are rising very sharply. Rising costs need to be allocated
and classified properly in order to take more accurate decisions; in case the costs are not properly
classified then the money charged from customers would not be appropriate which might lead to
loss of customers. Usually the costs in health care are allocated in different categories which are
discussed below.(Finkler A. Steven, 2007)
Relevant costs and revenues
Before taking any decision management has to first analyze the relevant costs and
evenues associated with the project. Relevant costs and revenues are those costs and revenues
are those costs and revenues that would occur in future and will be...