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Index - Same Level Subject

Introduction
Inventory
Cost Acccounting
Chart of Accounts
Budget Formation
Standard Unit Costing
Managerial Accounting
Auditing
 

Index - Child Subjects

Introduction

Estimated costing of products and services sever no purpose unless they are accurate to a reasonable degree.

Costing information can be utilized to determine the following "profitability" or to determine the ability of the project to become "sustainable."

• By Project

• By Department

• By Service

• By Individual

• By Donor 

Standard Unit Costing is the costing of a “service” or “process” that is provided to a client. These services can be as simply as a meal or a “unit” of family planning instructions. Each service provided can be assigned a cost based on standard cost accounting techniques. Many good references are available and all techniques will not be covered completely in this paper (see  Cost Accounting for Health Care Organizations, Finkler, Steven A.,1999)

The first task in calculating unit costs is to break down each and every cost as completely as possible into its component types. Once costs are broken down, modern accounting packages with access to Data Warehousing are able to “slice and dice,” using OLAP, the data in many different dimensions (time, client, cost center, services, etc). OLAP can be used to analysis data in any way that the particular user needs it and has permission to access it (see Managerial Accounting for examples

The user can then see costs by cost center, by service, by employee, by time, by client, or any of many other forms. This ability to “slice and dice” is MANAGEMENT. It allows the management to not only see the “whole picture” but also understand why certain problems may have occurred. By comparing this costs with budgeted costs, cost variances may be identified and action taken to correct the problems.

In one country, it was my task to estimate the savings in cost of merging the Family Planning unit with the Mother and Child Health section. The first step was to calculate the resources that were available. That seemed easy. Just add up the facilities and personnel in each location. However, I later found out that the personnel that were reported in each location were not really there. It seems that new medical doctors were assigned to rural clinics but soon left to the big city. No checks were every made so it was impossible to estimate the staff at each location.

Advantages of using Standard unit costing

• Updating of information in real time.
• Ability to report detailed resource utilization studies for every classification of expense for all organizational units, including:
• direct and indirect costs, restricted and non-restricted costs, fixed, variable, and semi-variable costs
• Ability to model “what if costs.”
• Ability to allocate all costs to the very smallest service level.
• Ability to have the flexibility to draw on different methods for allocating costs and to be able to develop what-if scenarios.
• Ability to adjust budgets manually by each period as well produce variance reports –reports comparing standard and actual costs and corresponding variances
• Ability to perform comparison analysis not only within the same classifications of units within the organization but also outside the organization such as industry averages
• Ability to “drill down” through multiple dimensions (departments, units, employees, service costs, etc) as well as the time dimension

Techniques

Develop a set of standard service units (SU).

Although the product of service is the client, a wide range of services provided to the client such as nursing, prescriptions, tests, physician care can be viewed as intermediate products. These service units should be defined in terms of volume and standardized treatment protocol. Two sets of standards are usually involved: (1) standard cost profiles (SCP’s) and (2) standard treatment protocols (STP’s).  SCP’s are developed at the department level. They reflect the quantity of resources that should be used and the prices that should be paid for those resources to produce a specific departmental service unit.

1.     Develop a standard cost for each service unit supplied.

A cost will be developed for each of the service units using standard microanalysis techniques. These costs will be determined by using the standard volume and the defined prices to be paid for the inputs. These costs should be broken down into variable and fixed , and also direct, indirect , and institutional overhead cost estimates.

2.     Apply this unit of cost to client procedures.

Each service unit provided to the client will be recorded on the client’s record with the standard cost. A total of all services units provide for each patient and for each service can be obtained.

3.     The variance is analyzed between the total of all service unit costs and the actual costs.  

 

4.     The parties responsible for the variances are determined. 

Planning

During planning, a standard cost should be developed of the processes or services that are to be delivered to the client. This standard cost should be calculated based on the estimated expenditures for the service. This standard cost will, in turn, be used to develop the budget based on an estimate of units of service.

Example:

It is calculated that family planning consultations will be given to 100 clients per month. It has been estimated that the cost of this consultancy (simplified) is as follows:

See Managerial Accounting for additional examples

See HIS example.

Using this example and the information that is produced, it can be determine not only when the treatment was given but also by whom.

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