Quiz 3: Product Costing


The general product costing method determines the cost by using actual cost of material, labor and overheads associated with the product. The standard costing is a method in which cost is determined by using predetermined cost of material, labor and manufacturing overhead associated with the product. Difference between general product costing and standard costing is tabulated in the comparison chart. img

P rocess costing is used when there is mass production of similar product, their costs associated with individual unit of output cannot be differentiated from each other. In Healthcare organization, process costing is used when the patients have same disease and same treatment and costs associated to treat them cannot be differentiated. H ybrid testing includes feature of for job order and process costing. Hybrid costing is used where there is identical process of baseline product, as well as individual modification that are made beyond the baseline level of processing. The hybrid costing is used where the initial costing of treating patient is same and later on it is different. If only the visitors who use counseling services are charged for the services, then it is an example of hybrid testing. Thus, it is concluded that its clinic which provides drugs counseling services is example of process costing. It is because the cost incurred on the visitors using counseling services, cannot be differentiated and remains same for all. The cost of counseling is same for all the visitors. However, in case any drug user needs special attention, or has unique issue, then he may be charged above the base line. Thus, it is hybrid costing wherein, the elements of both job order and process costing are included.

Cleverly proposed a model which included product costing method for health care organizations. This included a standard costing approach that is basically focused on service units (SUs), Standard Cost profiles (SCPs), Standard Treatment Protocols (STPs). In fact considering patient as the product is also accepted under fixed pricing scheme under health care system. The cleverly model has following attributes: Service units (SU) According to cleverly each patient is treated by being given a variety of intermediate products which is called as SU. Following cases can be understood as SU for health care organizations. A particular lab test would be held on SU. A day of nursing care is another SU. A day of nursing care at higher intensity is another SU. So in this way SU's are categorized by cleverly. Standard treatment protocol (STP) After that for any given patient, an STP is created, which would list all the intermediate products necessary to treat the patient. This STP could be either identifying all SUs (one would expect to give to a patient) or a tally sheet stating SUs given to different patients. In order to optimize the decision making as generated by SUs, there is a need to break them in specific information regarding labor, material, overheads etc. allocated to a particular patient (SU). If possible then they should be categorized into fixed and variable part also. STPs helps in identifying the different SUs required treating a patient. Hence STP helps in calculating the overall cost to treat a patient as it will tell the information of every SU consumed for treatment. Standard cost profile (SCP) These SCPs collectively make SU which mean that all the elements that have been made to make one SU. The cleverly model links the entire activities of organization directly to the SU, which are then directly linked to patient. But this model does not include indirect cost linked to patients. So, in order to record them there is a need to allocate this indirect cost like administration /office to the concerned department. Hence SCP includes direct labor, direct materials, and departmental overhead and allocated costs from outside of the department. At last the cost for each SU is multiplied by quantity of that SU consumed to get an extended cost, and by considering the SCP for each SU, and the quantity of each SU for each department, we can build a total standard cost for treating a patient of a given type.