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Costing Systems in Health Care

Any cost that a health care manager can authorize or directly influence is a controllable cost. Examples of non-controllable costs for the business include: taxes, interest, costs mandated in the fulfillment of contracts, costs of having the buildings ADA accessible, costs associated with complying with all minimum standards for habitation and use of buildings, costs associated with purchasing and maintaining every piece of equipment required for contracts, and costs associated with complying with mandated safety levels. Virtually every other expense the health care manager can influence the amount of the expense by controlling the level of the activity.

Which costing system would be more efficient when direct materials and direct labor costs are high, and overhead costs are low and why?
Which costing system would be more efficient when direct labor costs and direct materials are low, and overhead is high and why?
Explain how the supply chain and the macroeconomic environment of the health care business fit in with your calculations?

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Costing System with High Material and Labor Cost and Low Overhead Cost

In the situation, where the direct material and direct labor cost are higher than the overhead cost, the best costing system selected is the marginal costing. It is because marginal costing deals with the direct and indirect cost separately (Guan, Hansen & Mowen, 2007). As overhead are generally not countable in short-term decisions and where the overhead cost are low, marginal costing system would be most appropriate in compare to other means of costing system.

Marginal costing is also appropriate because it clearly differentiates between the fixed and variable cost. With high ...

Solution Summary

The expert examines costing systems in health care. Which costing system would be more efficient when direct materials and direct labor costs are determined.

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