Essentials Of Cost Accounting

Business

Quiz 11 :
Cost Accounting Ratios

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Quiz 11 :
Cost Accounting Ratios

Ratio reflects the relationship between dependent and independent variable in such a way that it provides the useful information. Financial ratio measures the financial indication by dividing one number by other. It serves as a basis of comparison. It is a most widely used tool by the people who wants to assess the financial condition of the organization. Ratio which are based on the cost accounting data are known as cost accounting ratios. It is extremely useful tool as it reflects the more accurate picture of organization. As health care organization uses only internal available data which restricts the comparison between similar organizations. But still there are accounting ratios that are used by the health care organizations. There are four kinds of ratio that can be useful to a hospital pharmacist. Ratios are general information ratio, managed care ratio, decision ratio and monitoring and control ratio. General information ratio is the ratio between fixed cost to total cost or variable cost to total cost. It enables the management to keep the records of fixed cost or variable cost as a part of total cost so that price schedule can be managed. img img Managed care ratios are the ratio enables the provider of health care to monitor the utilization pattern of their capitates patients. img Decision ratio provides the information which enables the management to make decision about particular services, product line or any offer by health care organization. Ratio of reimbursement to cost can be treated as example of decision ratio. img Monitoring and control ratio is a ratio which measure the cost of per patient's day. It is a ratio between total cost and patient day. It measures the decrease of cost if one patient day is reduced. img

SC Hospital data: Average cost per discharge is $6,500. Number of discharges is 300. Revenue to cost per discharge ratio is to be calculated. Revenue to cost per discharge ratio is calculated by the following formula: img Note: Numbers of discharges are irrelevant here. Therefore, Revenue to cost per discharge ratio of SC Hospital is img .

Ratio reflects the relationship between dependent and independent variable in such a way that it provides the useful information. Financial ratio measures the financial indication by dividing one number by other. It serves as a basis of comparison. It is a most widely used tool by the people who wants to assess the financial condition of the organization. Ratio which are based on the cost accounting data are known as cost accounting ratios. It is extremely useful tool as it reflects the more accurate picture of organization. As health care organization uses only internal available data which restricts the comparison between similar organizations. But still there are accounting ratios that are used by the health care organizations. Certain issues that are faced by the cost accounting ratios are: As much of internal information are not available to the public as compared to the financial statements. Usage of limited internal data restricts the health care organization to make comparison between similar organizations.