Standard costing in healthcare Meditech South Africa (Pty) Ltd provides software solutions to meet the information needs of healthcare organizations in Africa and the Middle East. According to their website, the software can encompass all areas of healthcare from doctor’s offices to hospitals. While their software products are generally patient centric, healthcare cost management also features in some of their products. For example, the software designed for hospitals includes some functionality for finance managers on cost accounting. The functions include budgets and standard cost definition. Costs can be defined for labor, materials and overhead and can draw cost information from other Meditech software modules. With standard costs defined, actual costs can be compared to standard/ budget. Standard costs can also be used as a basis to reimburse costs from health insurers, or actual costs of providing the services can be compared to reimbursement levels. The software also includes several reports such as variance reports by department, labor cost variances and flexible budget reports – all of which are useful for budgetary control and future budget preparation. Integration with other Meditech software modules and other systems implies cost data can be calculated at a departmental, procedure or patient level. For example, the cost accounting module can integrate with payroll systems ‘report on labor variance using labor productive hours and dollars. Questions: a) Do you think standards can be applied to procedures in hospitals? Example how it can be applied. b) Do you think standard cost variance reports are useful in healthcare? Justify your answer with suitable example.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter5: Support Department And Joint Cost Allocation

Section: Chapter Questions

Problem 1PA: Support department cost allocation Blue Mountain Masterpieces produces pictures, paintings, and...

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Standard costing in healthcare Meditech South Africa (Pty) Ltd provides software solutions to meet the information needs of healthcare organizations in Africa and the Middle East. According to their website, the software can encompass all areas of healthcare from doctor’s offices to hospitals. While their software products are generally patient centric, healthcare cost management also features in some of their products. For example, the software designed for hospitals includes some functionality for finance managers on cost accounting. The functions include budgets and standard cost definition. Costs can be defined for labor, materials and overhead and can draw cost information from other Meditech software modules. With standard costs defined, actual costs can be compared to standard/ budget. Standard costs can also be used as a basis to reimburse costs from health insurers, or actual costs of providing the services can be compared to reimbursement levels. The software also includes several reports such as variance reports by department, labor cost variances and flexible budget reports – all of which are useful for budgetary control and future budget preparation. Integration with other Meditech software modules and other systems implies cost data can be calculated at a departmental, procedure or patient level. For example, the cost accounting module can integrate with payroll systems ‘report on labor variance using labor productive hours and dollars. Questions: a) Do you think standards can be applied to procedures in hospitals? Example how it can be applied. b) Do you think standard cost variance reports are useful in healthcare? Justify your answer with suitable example.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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