Cost Behavior and Allocation Essay

Analyze the complexity of live behaviors in health pecuniary aid make-ups and describe how follow be classified according to their relationship with volume. health services managers atomic number 18 vitally interested in how be are affected by changes in volume. Before salute can be managed, one essential have an understanding of how and why costs are being incurred. For, example medications dispensed from the pharmacy are variant costs items since the more often medications are dispensed to the patient, the higher to the number medication costs (Lang, 2012).In this example the cost is driven by the prescription(prenominal) of the medication for the patient, which leads to dispensing the medication and incurring the cost. If the medication is not prescribed the total cost would be zero. The salary of the Director of the Pharmacy is a frosty cost, at least over the short run because that person is paid the same salary regardless of how many, or how few, prescriptions they fill. The text defines the relationship among an musical arrangements total costs and volume as cost behavior or vestigial cost structure, is used by mangers in planning, control, and conclusion making.The primary reason for defining and organizations underlying cost structure is to provide healthcare managers with a tool for call cost and profits at different volume levels (Gapenski, 2012). The cost structure of both immovable and variable costs- that is some of the costs are anticipate to be volume sensitive and some are not- is typical in healthcare organizations. Total variable costs increase or devolve proportionately as volume changes, but variable cost outrank form constant as long as volume quells within the relevant range. Fixed, costs, in contrast to total variable costs, remain unchanged as the volume varies.The Academy of Healthcare Management ledger states, when attempting to improve profitability by decreasing or controlling costs, cost behavior is p articularly important. If activities are limited or decreased to set about variable costs without consideration of fixed costs profits whitethorn actually decrease. In conclusion, total costs are merely the sum of the two. Because total variable costs are tied to volume, total variable costs increase as the volume increases even though fixed costs remain constant. Discuss the importance of cost apportioning and how it may be leveraged by health care organizations.Cost allocation is basically a pricing process within the organization whereby managers allocate the costs of one department to other departments. Cost allocations within healthcare organizations must establish prices that proxy those that would be set under market conditions. cost within a health services organization must be allocated. Overhead costs of the business, such as those incurred by administrators, facilities management personnel, financial staffs, and housekeeping and maintenance personnel must be alloca ted to those departments that generate revenues for the organization (Gapenski, 2012).The goal of cost allocation is to assign all of the costs of an organization to the activities that cause them to be incurred. Health services managers track and assign costs by individual patient, physician, diagnosis, reimbursement contract, and so on. Much of the motivation for more precise cost allocation systems comes from the recipients of overhead services. Mangers at all levels within health services organizations are under pressure to optimize economic performance, which translates into trim down costs.To assign costs from one activity to another, two important elements must be identified a cost pool and a cost driver. A cost pool is a grouping of costs that must be allocated, while a cost driver is the criterion upon which the allocation is made. Clearly, the proper allocation of overhead costs is essential to good decision making within health services organizations. In conclusion, reve nues must stand out the total of both fixed costs and variable costs combines in order for an organization to be profitable.