Question

Discuss how cost accounting can be utilized to support healthcare organizational strategic decisions and goals related to departments, facilities, and services

Answer 1

Cost Accounting is the process of accounting for cost which begins with recording of income and
expenditure and ends with the preparation of statistical data. It is the formal mechanism by means of which cost of products or services are ascertained and controlled.

(i) A cost system reveals unprofitable activities, losses or inefficiencies occurring in any form such as
(a) Wastage of man power, idle time and lost time.
(b) Wastage of material in the form of spoilage, excessive scrap etc., and
(c) Wastage of resources, e.g. inadequate utilization of plant, machinery and other facilities.
(ii) Cost Accounting locates the exact causes for decrease or increase in the profit or loss of the
business. It identifies the unprofitable products or product lines so that these may be eliminated
or alternative measures may be taken.
(iii) Cost Accounts furnish suitable data and information to the management to serve as guides in
making decisions involving financial considerations.
(iv) Cost Accounting is useful for price fixation purposes. Although sale price is generally related more
to economic conditions prevailing in the market than to cost, the latter serves as a guide to test
the adequacy of selling prices.
(v) With the application of Standard Costing and Budgetary Control methods, the optimum level of
efficiency is set.
(vi) Cost comparison helps in cost control. Comparison may be period to period, of the figures in
respect of the same unit or factory or of several units in an industry by employing Uniform Costs
and Inter- Firm Comparison methods. Comparison may be made in respect of cost of jobs,
process or cost centres.
(vii) A cost system provides ready figures for use by the Government, wage tribunals and boards, and
labour and trade unions.
(viii) When a concern is not working to full capacity due to various reasons such as shortage of
demands or bottlenecks in production, the cost of idle capacity can readily worked out and
revealed to the management.
(ix) Introduction of a cost reduction programme combined with operations research and value
analysis techniques leads to economy.
(x) Marginal Costing is employed for suggesting courses of action to be taken. It is a useful tool for
the management for making decisions.
(xi) Determination of cost centres or responsibility centres to meet the needs of a Cost Accounting
system, ensures that the organizational structure of the concern has been properly laid
responsibility can be properly defined and fixed on individuals.