Product Costing Techniques

This paper discusses traditional and new product costing techniques that have been developed over time. Furthermore this paper will also show how these techniques can be used in the healthcare industry.

There are several costing techniques used, some of them traditional while others are quite recent findings. Some of them include

Job Costing

Job costing or job order costing is a way to tracking expenses incurred on a job relative to the revenue produced by that job. Essentially it means how much it would take to produce one complete order. This sort of costing is suitable where the production is unique and each order is different from the other. For example a shoe manufacturer would have to change the design specification of almost every shoe that is produced. Thus since the variables differ, it is a good idea to cost them according to a specific order. Technological systems like Quickbooks help in costing item by item and presenting it in a report format that is easy to comprehend.

Job costing can be used in a healthcare environment for example like an operation. Since each operation is a unique, the items used would differ, thus making job costing ideal.

Process Costing

Process costing is often compared with job costing due their dissimilarities. In process costing, the costs of a product are traced by the entire process making up the average costs for the end product. This type of costing is ideal for large scale mass production facilities where identical products are being made. For example a car assembly line is an ideal place for process costing where one design is produced in large batches. SAP ERP solutions are widely used for this kind of costing by using automatic pricing and billing.

Although for the healthcare industry, process costing method is not fairly suitable, but it can be used in the diagnostics process where patients with similar problems come for checkups to the doctor.

Activity Based Costing (ABC)

The modern costing method is the activity based costing where costs are allocated for each activity conducted. It is a cause and effect method where the driver is the cause and the activity is the effect of the driver. This method helps in identifying the most profitable customers and channels while helping to identify the root cause of problems. SAS Activity-Based Management solutions are widely used in gaining insights into the process, cost and profitability by finding the most profitable customers and not just the most loyal.

The healthcare industry can utilize the ABC system by focusing on the activities as the basic cost objects. These costs can then be allocated to various cost objects like patient services, patients etc.

Time Driven Activity Based Costing

An upgrade to the ABC system is the Time Driven ABC where the time factor is also taken for accounting purposes. In this method the “managers estimate the resource demands imposed by each transaction, product, or customer, rather than relying on time-consuming and costly employee surveys”. This can be done by finding the costs per time unit of capacity and unit times of activities.

Healthcare is all about the provision of healthcare quickly and accurately thus this revised model of Time Driven Activity Based Costing can fit right into the costing methods.

Works Cited

12Manage. Activity Based Costing. 12Manage. Web.

Ansari, S., Bell, J. and Swenson,D. A Template for Implementing Target Costing. Cost Management 20 (5); p. 20-28. Web.

Basic College Accounting. Costing Techniques: Difference Between Job Costing And Process Costing. Basic College Accounting. Web.

Baker, J.J. Activity-based Costing and Activity-based Management for Health Care. Jones & Bartlett Publishers. pp 3-4. (1998). Web.

Fahrenbach, J. The ABCs of price-led costing. Best’s Review, (Life/health insurance edition) 100 (5), 69-70. Web.

McNair, C. J. Beyond the Boundaries: Future Trends in Cost Management. Cost Management 21 (1); p. 10-22. Web.

Newman, P. Job Costing – Do You Know How? Ezine Articles. Web.

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