Introduction
The global economy relies on healthcare, which includes medical treatment, preventive care, medications, and health technologies. Beyond hospitals and clinics, pharmaceutical companies, insurance, and regulatory organizations make the healthcare business dynamic and complex, requiring careful financial management and strategic decision-making. The industry is vital in promoting social well-being, economic progress, and innovation in modern business (ScienceDirect, 2017). Healthcare firms must, therefore, manage finances well to provide quality care, encourage innovation, and navigate a continually changing industry through financial sustainability and resource allocation.
Management accounting concepts
Variable costs
In managerial accounting, variable costs are expenses that vary proportionally with activity or production (Johnson, n.d.).
Fixed costs
“fixed costs” refers to expenses that stay constant regardless of the volume of services or goods produced. They include facility rent, administrative wages, and equipment depreciation (Johnson, n.d.).
Mixed costs
Mixed costs combine variable and fixed costs and have a fixed and variable component that varies with activity or production (Johnson, n.d.).
Job order costing
Job order costing is a managerial accounting system that allocates costs to specific tasks, projects, or services (Kesavan, 2019).
Theoretical analysis
Variable costs in healthcare
Due to patient number, medical complexity, and service demand, healthcare costs vary. The number and kind of treatments can affect the cost of medical supplies directly related to patient care. For example, variable costs may increase during peak flu seasons due to the higher use of personal protective equipment and staff to handle the increased patient load (Marques & Alves, 2023). Understanding and managing these expenses helps healthcare managers respond to changes and make responsive resource allocation and pricing decisions.
Relevance of fixed cost in healthcare
Healthcare operations depend on fixed expenditures, regardless of patient volume. Healthcare fixed costs include administrative wages, building rent, and equipment depreciation. They are essential for infrastructure and administration regardless of patient volume (Neumann, 2019). Therefore, healthcare management must carefully manage these expenditures for financial stability and ongoing service.
Applicability of mixed costs in the healthcare industry
Mixed healthcare expenses have fixed and variable components, making them difficult to examine. These include constant, continuous costs and variable costs based on healthcare services. Utility bills, where basic service prices are constant and power or water usage, are examples of mixed healthcare expenses (Marques & Alves, 2023). Healthcare managers need to identify and comprehend mixed costs to manage expenses sensitively.
Job order costing in healthcare
Job order costing, previously used in manufacturing, may work in healthcare. Job order costing may work in specialist medical treatments or surgeries (OpenStax, 2023). Each intervention is considered a “job,” allowing correct cost allocation for specific resources and supplies. Job order costing may not be universally relevant in healthcare, but it can be used in some circumstances to understand service costs better.
Case studies/field application
Variable Costs in Healthcare
Healthcare demands a flexible financial approach due to variable expenditures. Many hospitals saw a rise in patient admissions during the COVID-19 pandemic since PPE prices like masks, gloves, and gowns rose correspondingly. The hospital’s financial reports showed a more than 30% increase in PPE variable expenses (Furman et al., 2021). It shows how variable healthcare prices match service demand, prompting adequate response from healthcare administrators.
Fixed costs
Fixed cost enables constant service delivery regardless of patient load. The Cleveland Clinic illustrates the fixed expenses of maintaining cutting-edge medical equipment and infrastructure. Despite fluctuating patient volumes, the clinic’s yearly report showed stable funding for equipment and facility maintenance (The Cleveland Clinic, 2022). By maintaining vital infrastructure, fixed expenditures help healthcare facilities maintain their reliability and reputation, stressing their importance in financial management.
Mixed-cost healthcare
Healthcare mixed expenses require rigorous examination for financial management due to their fixed and variable components. Cleveland Clinic’s financial data showed mixed administrative salary costs with fixed and changeable pay based on patient volume to reflect administrative staff workload (The Cleveland Clinic, 2022). Healthcare administrators can better budget and allocate resources by deconstructing these expenses to understand the many elements that affect expenditure.
Implementing job order costing in healthcare
Job order costs can work for specialized services in healthcare. A case study on Cleveland Clinic showed task order prices for sophisticated radiation therapy. Treatment plans were regarded as separate jobs, allowing correct cost allocation for specialist equipment, medical staff, and consumables (The Cleveland Clinic, 2022). The costing system shows that task order costing is feasible in healthcare, especially for specialist interventions, for correct pricing.
Implications for Different Concentrations
Finance Professionals
Financial decisions, budgeting, and strategic planning in healthcare businesses depend on finance specialists using managerial accounting techniques. Many hospital’s financial reorganization use management accounting data to cut costs, boost efficiency and increase financial performance. However, the professionals may face obstacles due to complexity, regulatory compliance, and changing reimbursement structures such as struggling to adjust to healthcare reimbursement model changes. The move from fee-for-service to value-based reimbursement changed financial reporting and budgeting (Eldenburg et al., 2017). Thus, managerial accounting helps finance professionals assess financial data and make intelligent resource allocation, cost control, and financial management decisions.
Human resource professionals
Managerial accounting concepts inform healthcare HR management about labor expenses, productivity, and workforce planning. Human resources specialists at healthcare centers may use managerial accounting data to assess the cost-effectiveness of recruiting more nurses during peak hours (Scott, 2023). This data aids workforce planning to maximize staffing and patient care. Thus, data-driven managerial accounting helps human resources professionals match staffing to patient demand, limit labor expenses, and improve workforce efficiency.
Conclusion
The paper delves into managerial accounting concepts in healthcare, including variable costs, fixed costs, mixed costs, and job order costs. The concepts are crucial to healthcare organizations’ financial decisions, pricing strategies, and resource allocation, where finance experts use managerial accounting to streamline budgeting and improve financial performance. At the same time, HR professionals plan and control labor costs. Strategic adaptation is needed to overcome evolving reimbursement mechanisms in finance and workforce shortages in human resources. Thus, the managerial accounting principles underpin effective financial management, strategic decision-making, and excellent patient care in the dynamic healthcare context.
References
Eldenburg, L. G., Krishnan, H. A., & Krishnan, R. (2017). Management accounting and control in the hospital industry: A review. Journal of Governmental & Nonprofit Accounting, 6(1), 52–91.
Furman, E., Cressman, A., Shin, S., Kuznetsov, A., Razak, F., Verma, A., & Diamant, A. (2021). Prediction of personal protective equipment use in hospitals during COVID-19. Health Care Management Science. https://doi.org/10.1007/s10729-021-09561-5
Johnson. (n.d.). ACCT 102 -Professor Johnson Lecture Notes -Chapter 18: COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS. https://www.cerritos.edu/dljohnson/_includes/docs/ACCT_102_Lecture_Notes_Chapter_18.pdf
Kesavan, S. (2019, August 5). What is Job Order Costing? – Zoho Inventory. Essential Business Guides. https://www.zoho.com/inventory/guides/what-is-job-order-costing.html#:~:text=Job%20order%20costing%20is%20a
Marques, I. C. P., & Alves, M.-C. (2023). Hospital Costing Methods: Four Decades of Literature Review. Journal of Risk and Financial Management, 16(10), 433. https://doi.org/10.3390/jrfm16100433
Neumann, B. R. (2019, November 24). Healthcare Finance in America: Fixed and Variable Cost-Based Pricing. HMPI. https://hmpi.org/2019/11/24/healthcare-finance-in-america-fixed-and-variable-cost-based-pricing/
OpenStax. (2023, June). 4.8: Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment. Business LibreTexts. https://biz.libretexts.org/Bookshelves/Accounting/Managerial_Accounting_(OpenStax)/04%3A_Job_Order_Costing/4.09%3A_Explain_How_a_Job_Order_Cost_System_Applies_to_a_Nonmanufacturing_Environment
ScienceDirect. (2017). Health Care Industry. Www.sciencedirect.com. https://www.sciencedirect.com/topics/nursing-and-health-professions/health-care-industry
Scott, C. (2023, January 11). HR Finance 101: A Guide To Finance for HR. AIHR. https://www.aihr.com/hr-finance/
The Cleveland Clinic. (2022). Interim Unaudited Consolidated Financial Statements and Other Information. https://my.clevelandclinic.org/-/scassets/files/org/about/financial-statements/3q-2022-interim-unaudited-fs-mda.pdf?la=en
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