explain why proper cost allocation is important to health services organizations

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Expert Solution

Service organisation like hospitals have many different characteristics and therefore the overhead cost are to be allocated in a proper manner . This type of organisation are way different than manufacturing firm and therefore they do not have direct cost, cost of set organisation consists of overhead and therefore it plays a major role in allocation of these type of costs.

Majorily such service organisation use activity based costing method because this method allocates the overhead cost on the basis of consumption use by different products and therefore it gives an accurate and precise cost of product.

Due to non availability of direct cost and major cost consisting of overhead cost the allocation of overhead cost plays a very important role in decision making for the management in order to turn their organisation in a profitable one. Therefore cost allocation is very important in health service organisation.

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ekkarill92 answered 1 year ago

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