Application of the Activity-Based Costing Method for Unit-Cost Calculation in a Hospital

Abstract

Background:Choosing an appropriate accounting system for hospital has always been a challenge for hospital managers. Traditional cost system (TCS) causes cost distortions in hospital. Activity-based costing (ABC) method is a new and more effective cost system.Objective:This study aimed to compare ABC with TCS method in calculating the unit cost of medical services and to assess its applicability in Kashani Hospital, Shahrekord City, Iran.Methods:This cross-sectional study was performed on accounting data of Kashani Hospital in 2013. Data on accounting reports of 2012 and other relevant sources at the end of 2012 were included. To apply ABC method, the hospital was divided into several cost centers and five cost categories were defined: wage, equipment, space, material, and overhead costs. Then activity centers were defined. ABC method was performed into two phases. First, the total costs of cost centers were assigned to activities by using related cost factors. Then the costs of activities were divided to cost objects by using cost drivers. After determining the cost of objects, the cost price of medical services was calculated and compared with those obtained from TCS.Results:The Kashani Hospital had 81 physicians, 306 nurses, and 328 beds with the mean occupancy rate of 67.4% during 2012. Unit cost of medical services, cost price of occupancy bed per day, and cost per outpatient service were calculated. The total unit costs by ABC and TCS were respectively 187.95 and 137.70 USD, showing 50.34 USD more unit cost by ABC method. ABC method represented more accurate information on the major cost components.Conclusion:By utilizing ABC, hospital managers have a valuable accounting system that provides a true insight into the organizational costs of their department.

Cost Analysis of Eye Surgeries and Comparison with Approved Governmental Tariffs

“…Additionally, another study by Javid et al (2) showed that the costs calculated through ABC considerably differed from that of the traditional method. Beyond that, the ABC method yields more accurate information concerning the main components of costs (2).…”

“…Beyond that, the ABC method yields more accurate information concerning the main components of costs (2). Also, Kazemi et al (30) showed that governmental tariffs cannot cover the costs of wards and they have to be subsidized by the government in order to compensate for loss.…”

“…Technological advancement, population growth and increase in public expectations have imposed increasing cost upon the health section and forced managers not only to provide quality services with the least cost but also to expand their services (2).…”

Performance analysis of pharmaceutical installation as basic of feasibility: a self-based business unit into general services agency

“…Performance measurement can be used to assess the success of a company. Performance measurement has been used to measure financial performance and the use of standards set by the government so that it is not able to describe the overall performance of the company (Aprilliani et al, 2019;Chang et al, 2017;Gallagher et al, 2014;Febriawati, 2013;Javid et al, 2016, Oseifuah, 2013Harsetyanto, 2014). The measurement of financial performance only assesses performance for the short term and does not take into account the invisible assets owned by  ISSN: 2395-7492…”

The Costing Systems in Saudi Arabian Hospitals: Do They Need to Be Modified?

“…Archaic: Traditional costing systems are dependent on valuations of employee working hours even though computerised technological advancements are able to monitor production-related indirect costs (Kaplan and Norton, 2001). Employee working hours are deemed to be unsuitable and inconsistent cost drivers (Armstrong, 2014;Javid et al, 2016).…”