Assignment 2: Cost Behaviors and Allocation

HSA 525

The need of the situation is to increase the variable costs by keeping in view the requirements of the people (services) to provide them with at least with all what they deserve. The hospitals are supposed to increase the extent up to which they provide their services to the patients. They must strive in order to ensure that quality and standard of their healthcare treatments is more then adequate and that in turn will be a determining factor in which the health and well being of Americans. Similarly, the financial barriers should not be the something that does not allow many people to have an access to the appropriate health coverage. However it does currently prevent them from getting healthcare and coming into many critical situations. The cost behavior of many healthcare organizations has left an image that may be appreciated by all but in reality there is a need for taking more serious look and steps that can ensure the success of a healthcare organization. Cost allocation is a critical part of cost measurement at the subunit level and is the assignment, or allocation, of indirect costs (Gapenski, L., 2012). Cost allocation is essentially a pricing process within the organization that managers allocate the costs of one department to other departments (Gapenski, L., 2012). It is necessary evil and an organization will always have overhead cost and it should be allocated it is incurred by administrators, facilities management personnel, financial staffs, and housekeeping and maintenance personnel, the money is allocated to those departments from departments that generate revenues for the organization it comes from patient service departments in healthcare services setting (Gapenski, L., 2012).

Cost in a healthcare organization can be classified according to its relationship to volume in several ways however without patients then there would be no potential to make a profit. Volume is the number of patients that is essential to cover the fixed cost associate with running a hospital. Without the volume needed to not just cover the cost to run the organization then there is no potential for profit and without profit there is no reason or need for the business to even start. Cost equals the cost of providing a service to consumers. Volume equals the number of hours and units of service delivered (Managerial accounting, 2008). Profits equals’ price of service minus cost to provide the service leaves operating profits (Managerial accounting, 2008). The first to pieces of information is available to the management team and is necessary to understand the potential of the service been offered to consumers (patients). They help a manger to understand important operating information that will help managers asses past performance, plan for the future, and monitor its currents progress and for the last important part of the puzzle as stated previously a business cannot stay in business without profits for very long.

Reference page

Managerial Accounting Cost Volume Profit Analysis (2013): Retrieved from: http:www.academictutorials.com/managerial/managerial-cost-volume-profit.asp

Gapenski, L. (2012.), Healthcare Finance: An introduction to accounting and financial management (5th ed.). Chicago: AVPHA Press/Health Administration Press, 188-217.