Question

if you were a hospital administrator which side of the aisle would you prefer to work on - cost management or cost allocation side? Please explain and cite your response.

Answer 1

Cost management is the process of planning and controlling the budget, and it helps to predict what is the expenditures.Cost management is the technique which uses information to make better decisions.It uses data from financial accounting and cost accounting.It analyses using various techniques and arrives at a decision to report it to the management.It is to control cost.It is divided into planning, implementation and final analysis.In the planning phase the costs are estimated and taken for the higher management for the approval.Next implementation phase involves monitoring to make sure it is within the budget.After this ,the actual and budgeted costs are compared to know the variances.

Cost Allocation is the process of assignment of cost to the cost object.It assigns a particular cost to the cost unit.Cost allocation in simpler terms is the process of associating expenses incurred to the different departments of the organisation.For eg assigning wage distribution to the manufacturing department.It is assigning overhead to each department.By doing so we are better enhancing the allocation of the overhead.We are better pricing model.We are pricing the product better.

As defined Cost management is a larger responsibility as it takes into account managing of the cost of the entire business whereas cost allocation includes assigning overhead rate to each department. Cost management includes analyzing and reporting to the top management taking into account the past and present accounting data.

Hence working at the cost allocation would make one take lesser burden.Also Cost management needs a careful analyses of as it includes helping the firm to forecast the future expenditures in an effort to reach their budgeting goals.