Cost Accounting - Jones & Bartlett Learning

1 2/7/07 2:28 PM Page i Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. Essentials of cost Accounting for HEALTH CARE ORGANIZATIONS. Third Edition STEVEN A. FINKLER, PhD, CPA. Program in Health Policy and Management Robert F. Wagner Graduate School of Public Service New York University New York, New York DAVID M. WARD, PhD. College of Health Professions University of New England Biddeford, Maine JUDITH J. BAKER, PhD, CPA. The Resource Group Dallas, Texas 2/7/07 2:28 PM Page ii Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. World Headquarters Jones and Bartlett Publishers Jones and Bartlett Publishers Jones and Bartlett Publishers 40 Tall Pine Drive Canada International Sudbury, MA 01776 6339 Ormindale Way Barb House, Barb Mews 978-443-5000 Mississauga, Ontario L5V 1J2 London W6 7PA.

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4 Library of Congress Cataloging-in-Publication Data Finkler, Steven A. Essentials of cost Accounting for health care organizations / Steven A. Finkler, David M. Ward, Judith J. Baker. 3rd ed. p. ; cm. Includes bibliographical references and index. ISBN-13: 978-0-7637-3813-6. ISBN-10: 0-7637-3813-1. 1. Health facilities Costs Accounting . 2. Hospitals cost of operation Accounting . 3. cost Accounting . I. Ward, David M. (David Marc), 1964- II. Baker, Judith J. III. Title. [DNLM: 1. Costs and cost Analysis. 2. Health Facilities economics. 3. Accounting methods. 4.]

5 Econom- ics, Hospital. WX 157 F499e 2007]. 2007. 657'.8322042 dc22. 2006028724. 6048. Production Credits Publisher: Michael Brown Production Director: Amy Rose Associate Editor: Katey Birtcher Production Assistant: Amy Browning Marketing Manager: Sophie Fleck Manufacturing Buyer: Therese Connell Composition: Northeast Compositors, Inc. Cover Design: Timothy Dziewit Cover/Title Page Image: Leah Groisberg/Shutterstock, Inc. Printing and Binding: Malloy, Inc. Cover Printing: Malloy, Inc. Printed in the United States of America 11 10 09 08 07 10 9 8 7 6 5 4 3 2 1.

6 2/7/07 2:28 PM Page iii Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. Dedication To Lilli, Joanne, and (the Bear). 2/7/07 2:28 PM Page iv Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. 2/7/07 2:28 PM Page v Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. Contents Preface ..xiii About the Authors ..xvii PART I cost Accounting FOUNDATIONS ..1. CHAPTER 1 Introduction to cost Accounting ..3. The Purpose of cost Accounting ..4. Costs for Reporting vs. Costs for Management Planning and Control ..7. Good cost Accounting Systems.

7 8. The Human Element in cost Accounting ..9. Suggested Reading ..10. Exercises ..10. CHAPTER 2 cost Definitions ..13. Definition and Characteristics of Costs ..15. Cross-Subsidization of Costs ..19. True cost , Economic cost , and Accounting cost ..21. The Long Term vs. the Short Term ..24. Departmental vs. Product-Line Costing ..26. External Costs ..30. Notes ..31. Suggested Reading ..31. Exercises ..31. Problems ..31. CHAPTER 3 Product Costing ..33. The Need for Product Costing ..34. Job-Order and Process Costing ..34. Process Costing ..36. Job-Order Costing.

8 37. v 2/7/07 2:28 PM Page vi Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. vi CONTENTS. Hybrid Approaches to Product Costing ..40. Standard Costing Systems ..41. Microcosting ..46. Product Costing and Computers ..46. Notes ..47. Suggested Reading ..47. Exercises ..47. Problems ..48. CHAPTER 4 cost Allocation ..49. What Is cost Allocation? ..51. Determining Overhead Application Rates ..52. cost Allocation and Motivation ..59. Allocating Joint Costs ..63. Traditional cost Allocation for Health Care Organizations ..66. Is Good-Enough cost Finding Good Enough?

9 76. Notes ..79. Suggested Reading ..79. Exercises ..79. Problems ..80. CHAPTER 5 Costing for Nonroutine Decisions ..83. cost Information for Nonroutine Decisions ..84. Sunk Costs Are Irrelevant ..85. The Role of Volume ..86. Terminology for Relevant Costing ..88. Examples of Nonroutine Decisions ..88. cost -Benefit and cost -Effectiveness Analysis ..92. Notes ..94. Suggested Reading ..94. Exercises ..94. Problems ..95. CHAPTER 6 cost -Volume-Profit Analysis ..97. The cost -Volume-Profit Relationship ..98. Breakeven Analysis ..100. Caveats ..107. Mixed Costs and Step-Fixed Costs.

10 111. Using Breakeven Analysis for Decision Making ..112. Suggested Reading ..113. Exercises ..113. Problems ..114. 2/7/07 2:28 PM Page vii Jones and Bartlett Publishers. NOT FOR SALE OR DISTRIBUTION. CONTENTS vii PART II cost Accounting INFORMATION FOR. PLANNING AND CONTROL ..117. CHAPTER 7 Predicting Future Costs ..119. Using Groups for Estimating Costs ..121. Indexing for Inflation ..122. cost Estimation Using Linear Regression ..125. Forecasting ..136. Learning Curves ..150. Suggested Reading ..155. Exercises ..155. Problems ..156. Case Study Part 1 ..157.