Activity based costing: A practical model for cost price calculation in hospitals

Abstract

Background: Activity based Costing is an accounting method that allows organizations to determine actual costs associated with their services based on the resources they consume. It is an advanced cost calculation method that allocates resource costs to products based on activity consumption. Objectives: In this study, ABC method was used for calculating cost price of remedial services in hospital. Methods: To apply ABC method, Valie_asr Hospital was selected. Six steps should be followed when applying activity based costing to hospital procedures: 1. Defining activity centers, 2. Activity analysis in activity centers, 3. Determining output for each center, 4. Calculating activity center costs, 5. Allocating costs of administrative centers to activity centers, 6. Calculating cost price of services and 7. Cost price of remedy activity was calculated. Results: Hospital costs are predominantly determined by personnel cost. Because of the differences in tariffs and the cost price of hospital services, most parts of the hospital are losses and government is forced to subsidize them. Conclusion: activity-based costing model is a practical tool to evaluate the actual cost structure of hospital. ABC represents useful information about the amount and combination of cost price services. Hence, it is suggested to Health and care department to take into their consideration the use of information on cost price based on ABC in determining the tariffs for services.