Health Service Finance Questions

Question

1. In your workplace, give a good example of a direct cost? An indirect cost? Please provide an explanation of why your example fits the definition.

2. Does your organization use responsibility centers? Please explain.
Discipline: Health Service Finance 

Answer

Health Service Finance Questions

Direct costs refer to those prices that can be attributed to the production of goods or services. As such, these costs are typically used when it comes to incremental decision-making by most if not all sales managers. One of the direct costs at Grafton City Hospital in Grafton, West Virginia is the material costs. This is an excellent example as it incorporates costs that are identifiable from both the patient level and each patient. In this case, the material costs include inventory, heat, water, medicines, and food allowance. These costs are also very crucial to incremental decision making.

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On the other hand, indirect costs are those that are not necessarily associated with a single object, activity, or event. On normal occasions, these fall under a cost pool where a specific amount of money is allocated for various activities using an allocation method (Putan, Ivan & Tamas, 2017). Depending on the allocation method in use, the eventual outcome is that there will be a link between the activity and the indirect cost in question. At Grafton City Hospital, corporate salaries are a good example of an indirect cost as there is a specific amount of money allocated for salary purposes. Therefore, the corporate salaries will be allocated depending on the rank and other factors.

Responsibility centers are particularly important for any organization or company as they help in determining ways to maximize profits and returns on investments as well as to minimize costs (Putan, Ivan & Tamas, 2017). There are different types of responsibility centers. My organization, in particular, has a cost center whose primary goal is to minimize costs. Therefore, the cost center measures inputs in monetary terms. Here, the outputs are not measured.

References

Puțan, A., Ivan, O. R., & Tamas, A. (2017). Cost Centers from Hospital Units. Study Case. Valahian Journal of Economic Studies, 8(1), 67-80.

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