Kaplan cost model:
The model given by Kaplan is based on the philosophy that a single accounting system is not adequate for meetings the need of modern organizations. Kaplan also state that system of cost accounting excessively focused on external financing report and ignores internal reporting. Kaplan created model which has four stages: Stage 1 is Poor quality of data. Satge2 is focus on external reporting. Stage 3 is management relevance and innovations and Stage 4 is integrated cost system.
Kaplan model focuses on the fact that current cost accounting system should exist with new approach of costing so that it provides manager with the information which enables them to understand cost incurred by each product.
The model of Kaplan has three elements and the elements are as:
Collect information for preparing financial statement.
In order to motivate and evaluate managers collect cost information.
Collect information in order to take managerial decision.
Thus, it can be concluded that collection of information for different reasons are elements of Kaplan model.
Peavey agrees that traditional costing doesn't provide the good information to measure the profit and also that doesn't provide the information to help the manager in decision making. A new set of accounting was accepted by the Peavey which is known as Generally Accepted Accounting Principle (GAAP). These were used for product cost.
As results most of the product cost is based on the indirect allocations of such allocations are not considered as product specific. Same issued is faced by health care organizations as such allocations have weak cause and effect relationship. Therefore Peavey introduced the new methods Technical costing and Life cycle accounting
This method advocated the control of cost and ignoring the problems of cost allocation. It can be incorporated in GAAP and also provides information that can be used by management for decision making and for preparing external report. Under this approach plant, equipments are treated as direct cost and it avoid allocation depreciation into overhead.
Life Cycle Accounting:
It has been defined as accretion of cost for entire activities which has incurred in the whole life cycle of any product, which can be from stating to the abandonment of product. It focused on matching the revenues and expenses and not writing off the cost which generate profit for future. It also advocated for allocating the developmental cost should become the part of overhead cost in order to reflect the true cost.
Cost accounting is the process of recording the entire cost incurred in the business in order to advice management to improve their efficiency. Cost accounting has been drastically changed to make it more relevant and effective as it become out dated and need to be revised. Such movement is much needed for health organizations. Health firm has started to move toward the better cost accounting process.
It is required to state that if the changes in cost accounting are relevant to health care organization.
Heath care industries are affected by the cost accounting as that has been revolved around the Medicare Cost report. The beginning of (DRG) diagnosis related ground was an alarm to many hospitals. There are various reasons that change in cost accounting are relevant to HCO and the reasons are as:
1. Earlier Health care organizations (HCO) really didn't have any idea about the appropriate cost which is incurred by it to treat different types of patient and cost accounting plays a vital role in gathering the much needed information's in order to determine the correct information about the cost incurred on each patients. The essence to develop the cost accounting method to generate the important information for internal manager and determine the right cost.
2. Other reason is that in order to negotiate any contract managers are required to have accurate measures of cost incurred while serving different patients.
Thus, it can be concluded that change of cost accounting is relevant for health care organizations.