Question

For your main post, select two of the following types of organizations and describe what at least 2 standard costs they might use:

• Hospitals
• Law firms
• Accounting firms
• Auto repair shops

Additionally, explain the types of direct and overhead variances each of your selected organizations might encounter. Provide an example of each.

Answer 1

Costing Standards used in Hospital

• Hospitals shall group following categories and allocate costs accordingly:

1. Admitted patients;
2. Non-Admitted patient;
3. Emergency Department patient;
4. Teaching, Training and Research; and
5. Non-Patient.

• Where direct teaching is clearly the purpose of the cost centre than all costs should be allocated to the teaching and training sub-product in the ledger system.
• Where direct research is clearly the purpose of the cost centre all costs should be allocated to the research sub-product
• Before any partitioning of costs into product categories is undertaken, all costs accumulated in overhead costs centres should be allocated to direct cost centres
• All cost incurred during the year should be allocated to patients and non patients as appropriate.

Costing Standards used in Law Firm

• Some law firms use the trust account as a clearing account for all receipts, instead they should only put clients money in the trust account and not the earned fees. Earned fees should be directly posted in general fees ledger.
• Services shall be given a cost not based upon the number of hours devoted but as per the value of the client and future prospects.
• Revenue Adjustment Costs i.e. difference between actual cost and fees charged to the client should be recorded as either discount, premium or write off.
• Budget expensess should be establised in the begining of the year by the governing body.