'Cost Behavior and Allocation Essay\r'

' meditate the complexity of court bearings in health distribute make-ups and describe how constitute are classified fit in to their relationship with tawdriness. Health go managers are vit ally interested in how be are alter by changes in rule book. Before cost finish be managed, nonpareil essential have an concord of how and why be are being incurred. For, shell medicaments dispensed from the pharmacy are covariant cost items since the more often medications are dispensed to the patient, the high to the chalk up medication costs (Lang, 2012).\r\nIn this showcase the cost is driven by the prescription of the medication for the patient, which leads to dispensing the medication and incurring the cost. If the medication is not cocksure the lend cost would be zero. The salary of the music director of the Pharmacy is a fixed cost, at to the lowest degree over the short run because that person is salaried the same salary regardless of how many, or how few, prescr iptions they fill. The text defines the relationship between an organization’s congeries costs and volume as cost behavior or infralying cost building, is used by mangers in planning, control, and decision making.\r\nThe primary reason for define and organization’s underlying cost structure is to provide health care managers with a tool for foretelling cost and profits at different volume levels (Gapenski, 2012). The cost structure of both fixed and variable costs- that is some of the costs are expected to be volume sensitive and some are not- is characteristic in healthcare organizations. Total variable costs increase or decrease proportionately as volume changes, but variable cost sterilize resides constant as long as volume remains within the relevant range. Fixed, costs, in contrast to gibe variable costs, remain unvaried as the volume varies.\r\nThe Academy of Healthcare care Journal states, when attempting to improve profitability by lessen or contro lling costs, cost behavior is oddly essential. If activities are limited or decreased to write down 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 allocation and how it may be leveraged by health care organizations.\r\n toll allocation is essentially a pricing serve within the organization whereby managers allocate the costs of one department to other departments. Cost allocations within healthcare organizations essential establish prices that proxy those that would be set under market conditions. Costs within a health services organization must be allocated. Overhead costs of the business, such as those incurred by administrators, facilities management military unit, financial staffs, and housekeeping and maintenance personnel must be allocated to those departments that generate revenues for the organization (Gapenski, 2012).\r\nThe conclusion of cost allocation is to sequestrate all of the costs of an organization to the activities that cause them to be incurred. Health services managers track and assign costs by idiosyncratic patient, physician, diagnosis, reimbursement contract, and so on. Much of the motivation for more close 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 reducing costs.\r\nTo assign costs from one activity to another, two important elements must be identified: a cost pool and a cost device 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 decis ion making within health services organizations. In conclusion, revenues must exceed the total of both fixed costs and variable costs combines in order for an organization to be profitable.\r\n'