Which of the following is an allocated cost for a department within a healthcare facility
Cost Allocation Example & DefinitionCost allocation is the distribution of one cost across multiple entities, business units, or cost centers. An example is when health insurance premiums are paid by the main corporate office but allocated to different branches or departments. Show
When cost allocations are carried out, a basis for the allocation must be established, such as the headcount in each branch or department. Cost Allocation MethodologyA cost allocation methodology identifies what services are being provided and what these services cost. It also establishes a basis for allocating these costs to business units or cost centers based on their appropriate share of such cost. The basis for allocating costs may include headcount, revenue, units produced, direct labor hours or dollars, machine hours, activity hours, and square footage. Companies will often implement a cost allocation methodology as a means to control costs. Under an effective cost allocation methodology, business units become directly accountable for the services they consume. As a result, both the service provider and the respective consumers of that service become aware of service requirements and usage, and how such usage influences the costs incurred. As business units begin seeing the cost of the services they consume, they can make more informed choices—such as trade-off decisions between service levels and costs, and benchmarking internal costs against outsourced providers. Process for Performing Cost AllocationsUsing a basis for allocation, costs are spread to each business unit or cost center that incurred the cost based on their proportional share of the cost. For example, if headcount forms the basis of allocation for insurance costs, and there are 1000 total employees, then a department with 100 employees would be allocated 10% of the insurance costs. While there are numerous ways cost allocations can be calculated, it is important to ensure the reasoning behind them is documented. This is often done by establishing allocation formulas or tables. Once the calculation is established and cost distributions are calculated, journal entries are created to transfer costs from the providing or paying entity to the appropriate consuming entities. During each financial period, as periodic expenses are incurred, this calculation is repeated and allocating entries are made. What Does a Cost Allocation System Do?A cost allocation system consists of a way to track which entity within an organization provides a product and/or service, the entity that consumes the products and/or services, and a means of distributing this cost from the provider to the consumer or consumers. Depending on the operating structure of the company, the cost allocation may be performed by internal invoice, through a chargeback module in the ERP system, or more commonly, through journal entries performed by accounting staff each financial period. BlackLine's Cost Allocation SolutionBlackLine Journal Entry and BlackLine Transaction Matching work together to form a complete cost allocation system. BlackLine’s Journal Entry Management system provides an automated solution for the creation, review, approval, and posting of journal entries. For cost allocations, allocation tables based on specified percentages or set dollar amounts can be created or imported into the product. BlackLine Transaction Matching provides automated analysis of transaction details between any data source. Once the allocation tables are established in the solution, the technology pulls in data from expense accounts, matches it to the allocation table, and then distributes transaction amounts based on the allocation table. This integrates with the Journal Entry solution to automatically create all associated journal entries. In addition, any changes made to the allocation table are tracked and visible in an audit trail and applied to all future generated journals. This cost allocation system saves significant time by freeing accountants from performing cost allocation calculations each period, manually preparing journal entries, and maintaining allocation tables. Read this ebook to discover ten more ways that BlackLine Transaction Matching will help you save time—and restore your sanity. 1.1 - Sources of Expenditure Data
Earlier sources of expenditure information for costing research projects include: 1.2 - Types of Cost Data
In some cases the source of data will determine the ability as to what types of costs can be included in the costing method. The data should be investigated and costs identified prior to the inclusion/exclusion of specific cost elements in the total cost of health services. 1.3 - Approaches to Costing Health Services
1.4 - Which Method is Appropriate ?
If timely and accurate data for different services can be collected and analyzed to place the expenditures into different categories, then the researcher will have a choice in using direct costs, indirect costs or full costs. While there is no consensus on how to best allocate indirect costs, if the research demands these costs be included, defensible methods may be applied. Not including these costs clearly underestimates the real cost of patient care - services could not be provided without incurring the indirect costs, so any research question requiring the use of "full costs" should include these categories. Research to primarily investigate direct patient care would most likely adopt the method that includes only direct costs and exclude any of the indirect costs. Using full costs for research for these purposes would overstate the direct patient care costs which can be directly affected by health care processes. When precision is not required, particularly when relative rather than actual costs are important, a full cost method is appropriate. This method may also be considered when financial, categorical data are limited or are not available in a timely manner. 2.1 - Costing Hospital Services
Over time, MCHP has applied many different methods to calculate the cost of hospital services, based on the availability of data and the purpose of the research project. Most of these approaches involve determining the "relative" cost of services based on a case-mix classification system. The case mix costing approach is described above. Two MCHP research projects developed a detailed cost list for hospital services. More recent MCHP research uses a Cost Per Weighted Case (CPWC) / Cost of a Standard Hospital Stay (CSHS) value to calculate hospital costs. Other research describes developing the cost using different sources of cost data. One research project developed an index measure in order to adjust the cost of hospital services on an annual basis using several years of data and the CWC from the cost list project. Indexes were developed to mitigate the hours of work required to develop detailed costing methods and allows the measurement of annual hospital service costs more easily. These research projects are identified below.
2.2 - Costing Physician Services
For physician services in the Medical Services database, the cost of a physician service is equal to the professional fee, or tariff, paid to a physician for the service provided. NOTE: For the cost of services related to emergency departments (ER) and laboratory testing, if present in the Medical Services database, these only contain the physician portion of the service and do not include other costs associated with the ER or laboratory (i.e.: nursing hours or tech time). In addition, in-hospital diagnostic services are funded through the hospital's global budget and may be reported separately in the source data. These costs will not appear in the physician services data. For a more detailed description on physician service costs and data related to physician services, see the following concepts in the MCHP Concept Dictionary: Another method investigated at MCHP related to the cost of physician services is the development of a Physician Price Index. This index was developed to be able to measure physician costs in constant dollars (dollar values equivalent to the same year) and allow the comparison of changes in costs over a number of years. For more detailed information, see the Physician Price Index concept in the MCHP Concept Dictionary. 2.3 - Costing Home Care Services
In Finlayson et al. (2010), a per diem method is used to estimate home care costs: Per diem cost of home care = total expenditures of home care program ÷ total number of open file days In this research, total expenditures of the Home Care program were taken from the Manitoba Health Annual Report, 2005-2006. The annual report information is available on the Manitoba Health web site at: http://www.gov.mb.ca/health/ann/index.html. It is important to note the limitations of the per diem costing method in this situation. For example, without service data, we cannot identify people who are receiving different levels of services, such as homemaking versus nursing care, and therefore the actual cost of services cannot be attributed to an individual patient. This is why a per diem rate is used. See the following concepts for more detailed Home Care information: 2.4 - Costing Personal Care Home (PCH) Services
The cost of personal care homes is shared between the province (Manitoba Health) and the person who requires the services. See Manitoba Health - Personal Care Services - Questions and Answers About Personal Care Services and Charges web site at: http://www.gov.mb.ca/health/pcs/qanda.html for more information. PCH residents pay a per diem based on net family income. As of August 1, 2009 this ranges from $30.60 to $71.80. Manitoba Health pays the remainder of the cost for each day of care through funding provided to the RHA. The shared funding between Manitoba Health and the resident covers the cost of the following services: In Finlayson et al. (2010), a per diem method is used to estimate both proprietary and non-proprietary personal care home costs: Per diem cost of PCH = total expenditures of PCH program ÷ total number of resident days In this research, total expenditures of the PCH program were taken from the Manitoba Health Annual Report, 2005-2006. The annual report information is available on the Manitoba Health web site at: http://www.gov.mb.ca/health/ann/index.html . The LTC Utilization History database at MCHP is used to determine the number of resident days. Note: The weighted number of resident days in a PCH have been used as a component to calculate the cost of PCH use in other MCHP research (Shanahan et al., 1997) and (Jacobs et al., 1999). The weighted days were estimated using the number of nursing hours dedicated to a resident; the more nursing hours required the higher the weight. Weighted days have been recommended as an appropriate method for costing and have been calculated using the Repository at MCHP. However, work by Finlayson et al. (2007) suggests that there is very little difference in per diem costs based on weighted and un-weighted days. See the following concepts for more detailed information on PCHs: 2.5 - Costing Pharmaceuticals/Prescription Drugs
DPIN collects data on prescriptions issued to Manitobans from different sources/carriers, including Pharmacare (C1), Personal Care Homes (PCH) (C2), Employment/Income Assistance (C3), Palliative care (C4), and non-adjudicated sources (third party/client pay). The type of data collected includes: a patient identifier, the type of drug, the Drug Identification Number (DIN), dosage, prescription date, ingredient cost and professional (dispensing) fee. Using the DIN, the Anatomical Therapeutic Classification (ATC) code can also be identified. See the Drug Program Information Network (DPIN) Data Description for more detailed information. NOTE: The DPIN system does not collect data from hospital pharmacies, nursing stations, ward stock and outpatient visits at CancerCare Manitoba. Researchers working with pharmaceutical data should keep in mind that the "relative" costs of hospital inpatient drug utilization are included in the Case Mix Group (CMG™) and Day Procedure Group (DPG™) weights. For costing purposes, the total cost of a prescription is the sum of the drug ingredient cost plus the professional (dispensing) fee. In some cases, the values may need to be imputed. For more detailed information on pharmaceutical/drug costs, see the Calculating Costs/Expenditures for Pharmaceuticals concept in the MCHP Concept Dictionary. What is an allocated expense?What is an Expense Allocation? An expense allocation occurs when indirect costs are assigned to cost objects. Expense allocations are required by several accounting frameworks in order to report the full cost of inventory in the financial statements. A cost object is anything for which a cost is compiled.
What are the three methods of cost allocation?There are three methods commonly used to allocate support costs: (1) the direct method; (2) the sequential (or step) method; and (3) the reciprocal method.. direct method.. sequential method, and.. reciprocal method.. What are the different types of cost allocation methods?When allocating costs, there are four allocation methods to choose from.. Direct labor.. Machine time used.. Square footage.. Units produced.. What is common cost allocation?Common costs are typically assigned or allocated to joint products, processes, and activities, so the company can accurately determine the cost of each activity and adjust prices accordingly. In this case the joint activities are trips to different suppliers related to different department.
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