Healthcare Finance Essay

Like with any ho designhold, businesses have some expenses that atomic number 18 the uniform each month, and others that vary based on utilization. The mortgage, car none, and insurance premiums for the to the highest degree part argon the same throughout the year, but the utility bills, credit card bills, and cell phone bills may increase or strike monthly based on usage. In health c ar organizations, several(prenominal) types of equal enkindle be classified according to the amount of function provided. This can be referred to as activity, utilization, or brashness (Gapenski, 2012). Reference for strain (2012) says, Fixed and varying expenses are the two main components of a political partys total overhead expense (p.1). This paper will terminus how be in healthcare organizations are classified according to their people, and the brilliance of cost assignation. for healthcare providers, a cost involves a resource use associated with providing or supporting a specifi c service (Gapenski, 2012, p. 148).With indomitable and variable quantity cost classification the range of gaudiness should be specified (Gapenski, 2012). In health care organizations, the actual coming(prenominal) volume is uncertain for the play of patient days, number of visits, number of enrollees, or the number of diagnostic tests (Gapenski, 2012). However, a general idea of the volume range over a situation accomplishment of time is usually known (Gapenski, 2012). Fixed cost are known and are not related to volume within a relevant range (Gapenski, 2012). Unless the volume deviates excessively in a affirmative or negative direction, fixed cost is not affected. Basu (2012) says, Fixed be remain constant within a specific range of activity. However, if volume increase or decrease past certain levels, fixed cost may change (p.1). For examenple, if a physicians office stave can handle up to 10,000 patient visits, as long volume stays within the relevantrange of 8,000 to 10,000 defined by the office, the fixed cost remains unchanged (Gapenski, 2012).Although most fixed costs such(prenominal) as equipment, weekly payroll, and rent are fixed for a period of time, an increase or decrease in volume in the prox could mandate changes/adjustments to the fixed costs (Gapenski, 2012). Fixed costs dose not fluctuate with volume changes within a relevant range, but variable costs does. Costs that are directly related to volume are called variable costs (Gapenski, 2012, p. 150). Reference For Business (20120 says, changeable costs are those that respond directly and proportionately to changes in activity level or volume (p. 1). Using the physicians office above as an example, some of their variable cost could be gloves, tongue depressors, disposable exam gowns, and needles. As patient volume fluctuates, the cost associated with these supplies will also fluctuate in relation to the volume changes. Because some costs are organisational and some are specific to a subunit, it is necessary to create a system that portions costs (Gapenski, 2012).A critical part of cost perplexity at the subunit level is the assignment, or storage allocation, of direct costs. Costs allocation is essentially a pricing process within the organization whereby managers allocate the costs of one department to other departments (Gapenski, 2012, p. 188). Overhead cost such as, facilities management personnel, financial staffs, and housekeeping and maintenance personnel, must be allocated to the capital generating departments of an organization (Gapenski, 2012). Cost allocation assigns the costs of an organization to the entities that incurred the costs. Cost allocation data allows the organization to make better decisions in, tracking, assigning, and controlling costs, as wellspring as the offering and pricing of services. (Gapenski, 2012). Cost allocations can also advert with reducing cost, because departments are held accountable for the full cost associate d with running their department. As a result, mangers will use costs saving methods to keep costs down, since evaluations, compensation, and promotions are sometimes dependent on economic results (Gapenski, 2012). Costs can be fixed or it can be variable.Peavler (2012) say, Fixed costs are the costs associated with the product that have to be paid, regardless of the volume of the product you sell. Variable costs are directly related to sales (p.1.). some cost are more or less inevitable because they are independent of volume, while other costs are frequently lesspredictable because they are related to volume (Gapenski, 2012, p. 150). Whether fixed or variable, costs are usually allocated within an organization. Averkamp (2012) says, The goal is to assign the costs based on the root cause of the common cost preferably of merely spreading the costs (p. 1). Knowledge and utilization of these concepts, helps with current and future planning for an organizations financial success.Ref erencesAverkamp, H. (2012). What is cost allocation?. P. 1. Retrieved from http//blog.accountingcoach.com/what-is-cost-allocation/Basu, C. (2012). Effects a gross sales Volume Increase or Decrease Will Have on Unit Fixed Cost. P. 1. Retrieved form http//smallbusiness.chron.com/effects-sales-volume-increase-decrease-uniGapenski, L. C. (2012). Healthcare Finance An Introduction to accounting system and Financial Management (5th ed.). Chicago, Illinois AUPHA Press / Health Administration Press.Peavler, R. (2012). Fixed and Variable Cost. P. 1. Retrieved from http//bizfinance.about.com/od/pricingyour product/qt/Fixed_Variable_CostReference for Business. (2012). Fixed and Variable Expenses. P. 1-4. Retrieved from http//www.referenceforbusiness.com/small/Eq-Inc/Fixed-and-Variable-Ex