Why Is Activity Based Costing Important In Healthcare

The week four individual paper addresses the implementation of Activity Based Costing (ABC) by Super Bakery, Inc., a virtual corporation founded by Franco Harris. Specifically, management strategies, the reasoning behind an ABC system, and the alternatives of a job order cost system or a process order cost system are assessed for this enterprise.

Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.

In using ABC overhead costs are distributed differently across the three products, but in total they are the same, in total. However, ABC changes the information that managers receive to make effective business decisions, which will ultimately result in improved business results.

As it can be seen this traditional system shows both the procedures to be profitable for the clinic. But there were several concerns regarding this procedure as projected by the controller of the clinic, since the traditional system may not be assigning the common expenses to accurately represent the underlying use of the common resources used by HD and PD. Therefore there is a need shown by the controller to explore the activity-based costing system to understand the costs netter, which can more accurately calculate the profitability of the two procedures in order to assist the managers to make more-informed decisions. This has been performed in the following breakdown where the general overhead category, nursing services and equipment costs have been the focus of the analysis, to obtain a better understanding of the costs at Western Dialysis Clinic.

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx,

This paper will be supply an overview about situation in implement of Activity Based Costing in the health care system based on Kaplan and Porter’s method. The main purpose of the paper is that analyzes advantages and disadvantages of this method when worldwide use of this method in health care based on researches in Europe and USA. In addition, basing on Porter’s ideas, there are a large number of ways which help us reduce cost in health care. It will be argued that whether Activity Bases Cost method is able to bring benefit in reducing costs to health care, especially hospitals, or not.

Aird (1996) has stated that the activities performed to meet the needs of patients results in the improvement of service quality while also causing the incurrence of costs, and conventional costing systems fail to provide the information that management requires to make decisions. Conventional systems are also fairly inaccurate and understimate the costs of complex treatments while overestimating the costs of high-frequency simpler treatments. Aird (1996) also argues that activity-based cost management improves financial information quality as well as assists in process

The ABC method means that all the individual activities part of a process can be accurately cost. This is what Super Bakery needs to set the value of the company based on the activities of individual assets (management, staff, manufacturing and warehouse). The activity- based cost system allows the company to identify where high (and low) costs are being incurred and the cause. How can a company survive with a 20% growth rate in twenty year duration? The desire to change was required and ABC is the best cost system for Super Bakery. The ABC method helps with future product planning and the cost of all activities associated with a product or service can be accurately determined before it is launched. This can help with determining pricing, and any associated expenditures of the company.

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

Question 1: Compare activity based costing (ABC) with traditional costing. Is it an improvement? If so why? Explain with a case (numerical).

Keeping in the mind importance of even the smallest decisions that management may have to face on a daily basis, integrating a different kind of cost and attempting reduce as many constraints as possible is a very important decision. When it comes to integrating ABC costing rather than traditional costing, businesses are implementing a more accurate and specific costing method than they would get if they went with traditional costing methods. GAAP allows for traditional accounting methods. This is a big deal because by using the ABC method rather than using traditional accounting method allows a more transparent and accurate costing approaches. Using ABC allows management and the other higher level employees see where money is coming from and specific expenses are made and thus give them the ability to make proper alterations to the way certain events are carried out throughout the daily process of the business and thus give management an opportunity to improve their profits and the way they do business. With traditional accost methods however, there is less accountability on specific

In the increasingly competitive business environment, the enterprises who intend to maintain and enhance competitive advantages must build an efficient costing system to control, plan and decide how to improve the profitability and efficiency of the operation. Activity-based costing system (ABC) is such an advanced costing system that satisfies the needs of companies in modern business environment. This essay gives a whole picture about the ABC from five parts: background introduction, definition of ABC, comparison with traditional costing system, evaluation of ABC and conditions of acceptability.

This paper describes the conceptual basis for the design and use of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold.^ Thus, conventional systems do not measure accurately the costs of

ABC refers to cost attribution to cost units on the basis of benefit received from indirect activities e.g. material ordering, material handling, machine setups, quality assuring, customer support services etc. For each such activity, it is necessary to identify a cost driver that causes incurrence of cost relating to that activity. For example, hours spent on testing for a quality assurance activity may be used as application base of cost driver for this activity.