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MANAGEMENT ACCOUNTING IN HEALTH CARE ORGANIZATIONS: An Activity Based Management and Costing Focus Preface PART I Background Chapter 1. Accounting and Management Chapter Learning Objectives Accounting Defined The Work of Managers Planning Strategic plans Operational plans Organizing Leading Controlling Discussion Questions Narrowing the Management Accounting Arena Expanding Management Accounting Beyond Money Measurement Discussion Questions For-Profit and Not-for-Profit Objectives Discussion Question Conclusion Summary of Key Points Exercises Exercise #1 Exercise #2 References Chapter 2. Management Accounting and Internal Decision Making Chapter Learning Objectives Decision Characteristics Specificity Routineness Discussion Questions Decision Models Non compensatory models Conjunctive models Disjunctive model Lexicographical models Compensatory models Discussion Questions Information Systems Appropriate information Usable form Appropriate recipient Proper timing Discussion Questions Information Systems and the Decision Environment Decision maker problems Discussion Question Decision environment problems Discussion Questions Conclusion Summary of Key Points Exercise References PART II COSTS AND COSTING Chapter 3. Perspectives on Costs Chapter Learning Objectives eGeneral Considerations Definitions Cost objects Production costs Direct costs Indirect costs Fixed overhead Variable overhead Joint cost Balance of Fixed Costs vs. Variable Costs Overhead Cost Behavior Product -Direct vs. Center-Direct Costs Unit Cost Summary of Production Costs Selling and Administrative Costs Discussion Questions Marginal Costs Committed Costs Sunk Cost Discretionary Costs Discussion Questions Standard Costs True Cost Costs and Charges Summary of Key Points Exercise Appendix 3: Cost Behavior Analysis Graphical View of Overhead Costs Figure 3A-1 Figure 3A-2 Figure 3A-3 Distinguishing Fixed from Variable Costs Figure 3A-4 The Hi-Lo Method of Analysis Example Figure 3A-5 The Regression Method of Analysis Problems Problem #1 Problem #2 Problem #3 Chapter 4. Introduction to Costing Chapter Learning Objectives Introduction Product Costs for Management Decisions Payment Mechanisms Fee for service Prospective Payment Capitation Identifying Appropriate Cost Fee-for-service Prospective payment Capitation Summary: increasing financial risk Discussion Questions Final versus Intermediate Products The Capacity Issue Departments and Activities Discussion Questions Identifying Activities Example: A Primary Care Clinic Table 4-1 Figure 4-1 Table 4-2 Management's interpretation Assumptions and accuracy Differentiating cost components Fixed cost considerations Table 4-3 Historical versus projected data Overhead revisited Case summary Discussion Questions Summary of Key Points Problem References Chapter 5. Formalizing the Analysis of Activities and Costs Chapter Learning Objectives Categories of Activities Discussion Questions Organization Centers - The Loci of Activities Differences among activity types Implications for service centers Cost Drivers Activity drivers Resource drivers Relative value units (RVUs) as drivers RVUs set as an average of direct costs Example RVUs set by subjective judgment RVUs set for determining rates in a fee schedule Implications for product centers Drivers as linkages Figure 5-1 Organization sustaining activities Discussion Questions Comprehensive Cost Analysis Flows to the cost objective The fixed cost problem Discussion Questions Example: Organization and Production Sustaining Costs Identifying cost targets Figure 5-2 Institutional overhead Exhibit 5-1 Intermediate activity centers Exhibit 5-2 Overhead flow Figure 5-3 Table 5-1 Considering Multiple Levels of Overhead The Scope of an ABC Analysis Summary of Key Points References Appendix 5 Charting Activity and Resource Flows Introduction Basic Symbols Table 5A-1 Parameters Factors Capacity Volume Policy Some Examples Unit factor Figure 5A-1 Constant factor Figure 5A-2 Total factor Charting inefficiencies Figure 5A-3 Summary Exercise Exercise: An Application - Charting the Cost Flow in a Primary Care Clinic Solution to Exercise Figure 5A-4 Appendix 5.1 Another Way to Chart Activity and Resource Flows Introduction Basic Approach The process hierarchy Modeling phases Basic Modules Figure 5A.1-1 Figure 5A.1-2 Figure 5A.1-3 Example Figure 5A.1-4 Summary Chapter 6. Organization Structure and Costing Chapter Learning Objectives Introduction Comparing Structural Units Exhibit 6-1 Cost centers versus profit centers Service centers Product centers Discussion Questions Transfer Prices and Pseudo Profit Centers Discussion Questions Uses of Center-Specific Cost Information Service centers solating separable service activities Product centers Discussion Questions Example: Product Center -Diagnostic Radiology Table 6-1 Table 6-2 Summary Direct versus Indirect Costs Fixed versus Variable Costs Cost Flows to Health Care Products Major diagnostic categories (MDCs) Exhibit 6-2 Exhibit 6-3 Capitation Other organizing schemes Discussion Questions Summary of Key Points Exercise Problem #1 References Chapter 7. Aggregating Activity Costs Chapter Learning Objectives Introduction Product Center Overhead Discussion Questions Example-Health Care Example Summary Figure 7-1 Discussion Questions Batch Level Overhead Activities Unit Level Activities Example Example-a clinical laboratory Supply processing and distribution (P&D) Maintenance Calculating laboratory test setup costs Table 7-1 Tools and Equipment (T&E) T&E cost per test Clerical support Remaining costs Table 7-2 Figure 7-2 Discussion Questions Bottom-Up and Top-Down Analysis Figure 7-3 Figure 7-4 Discussion Questions A Reflection Example Example-An Operating Room Figure 7-5 Table 7-3 Summary of Key Points References Chapter 8. Revealing Activity Structures and Cost Drivers Chapter Learning Objectives Introduction Isolating Separable Activities Documents Organization Charts Job Descriptions Procedure Manuals Interactions Observation Interviews Group Discussions A Comment Discussion Questions Isolating Drivers Activity Drivers Resource Drivers Resource Use Analysis Observation and Interviews Relative Value Units (RVUs) Engineering Work Study A Macro Level Time Study Figure 8-1 Figure 8-2 Figure 8-3 Figure 8-4 Discussion Questions Example General Example - A Return to Arthroscopic Knee Surgery Figure 8-5 Additional Comments Summary of Key Points Exercise and Problems Exercise Problem #1 Problem #2 References Chapter 9. Planning, Designing and Implementing ABC Systems Chapter Learning Objectives Introduction Planning ABC System Design Determining Management Motivation Exhibit 9-1 Determining Management Priorities Exhibit 9-2 Applying Management's Criteria to the Project Exhibit 9-3 Decision-Making Exhibit 9-4 Exercise Designing the ABC System and Its Implementation Determining Stages of Implementation Determining Responsibility Structure Figure 9-1 Implementation Responsibility Documentation Responsibility Maintenance Responsibility System Update Responsibility Determining Actual Detail of System Structure Determining Inputs Determining Outputs Example Computation of Operating Cost ABC System's Method for Assigning Cost Figure 9-2 Determining Report Structure Determining System Update Schedule Scope of ABC Analysis Figure 9-3 Implementation by Stages Setting Up Project Management Project Team Reporting and Documentation Implementing Pilot Projects Timeline Test Results Adjust Methods Training Implementing System-Wide Performing System Evaluations Maintaining Project Structure Encourage Communication Plan for On-Going System Improvement Implementation with Multiple Cost Systems Implementation with ABC Upgrades An ABC Incremental Implementation Approach Full Costs Are Not Relevant Incremental ABC Estimates Example Step 1: Identification of all relevant costs Table 9-1 Table 9-2 Step 2: Clustering and counting of services Step 3: Identifying activity measures or cost drivers Table 9-3 Step 4: Applying the activity measures or cost drivers Table 9-4 Step 5: Accounting for external costs Table 9-5 Step 6: Sorting of costs Step 7: Estimating the costliness of the factors Step 8: Aggregating the functional costliness of a unit of service Table 9-6 Summary Conclusion Summary of Key Points References PART III. MANAGEMENT ACCOUNTING APPLICATIONS Chapter 10. Traditional Costing to Support Financial Accounting Chapter Learning Objectives Introduction Measures of Financial Performance Discussion Question Traditional Department Focused Overhead Costing Figure 10-1 Service department cost allocation Another influence on service department groupings Exhibit 10-1 Step-down allocation Reciprocal allocation Subjective view of relative cost assignments The averaging problem revisited Managerial cost component allocation proportions Discussion Question Profit center overhead cost allocation Cost-to-charge ratios Relative value units (RVUs) Expert judgement Discussion Questions A Summary of Traditional Costing Applied to Health Care Example Example: Return to the clinical laboratory Table 10-1 Exhibit 10-2 Table 10-2 Types of Costing Systems Process Costing Job Costing Operational Costing Exhibit 10-3 Job Shops and the Patient Job Shops The patient as a job Discussion Questions Differences between Financial and ABC Cost Accounting Discussion Question Summary of Key Points Problems Problem #1 Problem #2 References Chapter 11. Cost Prediction Chapter Learning Objectives Introduction Forecasting Cost Selecting drivers Example Discussion Questions The starting point Forecasting Trends Discussion Questions Other Trend Analysis Regression Regression supporting cost driver analysis Time-series regression Figure 11-1 Exponential smoothing Table 11-1 Moving averages Discussion Questions Learning curves Examples Example #1 Example #2a Table 11-2 Figure 11-2 Example #2b Discussion Questions Evaluating Forecast Methods Figure 11-3 General Conclusions Regression analysis Moving averages Exponential smoothing Discussion Questions Fixed Cost Forecasting Example Discussion Questions Further Observations Summary of Key Points Chapter 12. Budgets, Budgeting and Control Chapter Learning Objectives Strategy, Plans and Activities Discussion Questions Operating Budgets Zero based budgeting Incremental budgeting Discussion Questions Steps in Creating an Operating Budget Uses of Operating Budgets Cash Budgets Discussion Questions Programs and Strategic Budgets Discussion Questions Marketing, ABC and Control Organization Structure, People and Control Discussion Questions Control and Accounting Capability Different perspectives for different decisions Computers and data bases Profit control versus cost control Product lines Cost structure implications Discussion Questions Exercise Flexible Budgets and Standard Costs Static Budget Discussion Questions Summary of Key Points References Appendix 12 Cash Budgets Learning Objectives An Example Table 12A-1 Construction of the Cash Budget Converting revenue to cash inflows Converting material expenses to cash outflows Converting labor costs to cash outflows Converting lease and contract expenses Table 12A-2a Completing the cash flow budget Table 12A-2b Another situation Observations and Summary Chapter 13. Cost Variance Analysis Learning Objectives Introduction Discussion Questions Direct Cost Variances Direct material variances Volume variance Efficiency variance Price variance Direct labor variances Examples Example #1- Direct Cost Variances Discussion Questions Overhead Variances Examples Example #2 - Variable Overhead (VOH)Variances Example #3 - Fixed Overhead (FOH) Variances Example #4 - A Complete Overhead Variance Analysis Limitations Discussion Questions Summary of Key Points Problems Problem #1 - Direct Cost Variances Problem #2 - Overhead Cost Variances Problem #3 - General Variance Analysis Appendix 13 Revenue Variances Learning Objectives Revenue and Contribution Causes of Profit Variances Revenue Variances Market size variance Market share variance Product mix variance Sales price variance Example Chapter 14. Classical Cost-Based Decision Models Learning Objectives Introduction Marginal, Relevant and Sunk Costs Categories of Marginal Cost Problems Discussion Questions The Cost-Volume-Profit Model Figure 14-1 Break-even analysis Target analysis Examples Example #1 Example #2 Example #3 Example #4 Discussion Questions Price Discounting Examples Example #5 Discussion Questions Outsourcing Examples Example #6 Example #7 Subjective Considerations Discussion Question Dropping Products Example Example #8 Example #9 Adding Products Example Example #10 Discussion Questions Summary of Key Points Problems Problem #1 Problem #2 Problem #3 Problem #4 Chapter 15. Performance Measures Learning Objectives Introduction Financial Perspective Income statements Balance sheet Joint measures Discussion Questions Customer Perspective Patients Services Access Quality Price Discussion Questions Physicians Services Quality Price Discussion Questions Third party payers Services Price Prices charged by the payer Discussion Questions Detecting Unwanted Customers Detecting Terminating Internal Perspective Organization standards Industry standards Regulatory standards Discussion Questions Learning and Growth Perspective Discussion Question Supplier Perspective Discussion Questions Balanced Score Cards Summary of Key Points Exercise References Appendix 15 Performance Measure Examples Introduction and Commentary Quantitative Measures Physician Performance Reports Prepared by Hospitals Comparative Facility Performance Reports Issued by Governmental Agencies Facility Profiles Published as Guides by Commercial Entities Qualitative Measures Emergency Room Customer Satisfaction Survey Inpatient Customer Satisfaction Survey Examples Figure 15A-1 Hospital's Physician Performance Report - Quantity of Services Provided by Each Clinician Figure 15A-2 Hospital's Physician Performance Report - Laboratory Testing Ordered by Each Clinician for Each Type of Service Figure 15A-3 Governmental Facility Performance Report - Hospital Comparative Report Figure 15A-4 Governmental Facility Performance Report - Lung Infections, Complicated Figure 15A-5 Facility Profile Example Figure 15A-6 Emergency Room Customer Satisfaction Survey Figure 15A-7 Inpatient Customer Satisfaction Survey Chapter 16. Management Accounting Reports Learning Objectives Introduction Periodic Performance Reports Balanced Score Cards Objective hierarchies Figure 16-1 Objectives and control Report card uses Discussion Questions Executive management Operations managers Report complexity Report frequency Management accountants and performance report cards Appropriate Periodic Report Information Discussion Questions Non-Routine Decision Support Understanding decision models Established models Decisions without precedence Ad hoc reporting information Discussion Questions Content Formats Graphic presentation Table 16-1 Pie charts Figure 16-2 Column charts Figure 16-3 Line charts Figure 16-4 Figure 16-5 Summary symbols Graphic Choices Report Distribution Figure 16-6 Figure 16-7 Discussion Questions Summary of Key Points References Chapter 17. Summary and a Look to the Future Summary The health care environment Power of third-party payers Over capacity Motivation for efficiency A Look to the Future References Appendix A A Review of Financial Accounting Concepts The Concept of Financial Accounting: Introduction Organizational Structure Affects Financial Accounting Organization's Type of Business Exhibit A-1 Organization's Purpose The Overseers of Financial Accounting Financial Accounting Standards Board (FASB) Governmental Accounting Standards Board (GASB) Securities and Exchange Commission (SEC) Public Company Accounting Oversight Board American Institute of Certified Public Accountants (AICPA) Other Influences on Health Care Reporting Medicare Cost Reports Medicaid Cost Reports Specially Funded Projects Such as Research or Demonstration Projects American Hospital Association (AHA) Financial Accounting Characteristics, Criteria and Assumptions Financial Accounting Characteristics Financial Accounting Criteria Financial Accounting Assumptions Organization is a separate entity Organization is a going concern Uniform measures Periodicity Reporting Financial Results Financial Reports Prepared Within the Organization Financial Reports Prepared by an Outside Firm Compilations and reviews Audits Accounting Principles The Time Period Principle The Revenue Principle The Matching Principle Accounting Methods; Accrual Basis versus Cash Basis Accrual Basis Cash Basis Modified Cash Basis Exhibit A-2 Financial Statements Financial Statement Presentation Time Periods Comparative Statements Financial Statement Titles Vary Exhibit A-3 The Three Primary Financial Statements Balance Sheet Exhibit A-4 Statement of Income Exhibit A-5 Statement of Cash Flow Exhibit A-6 The Fourth Financial Statement Exhibit A-7 Exhibit A-8 Example Balance Sheet Exhibit A-9 Current Assets Long-Term Assets Current Liabilities Long-Term Liabilities Partners' Equity Income Statement Exhibit A-10 Operating Revenues Operating Expenses Other Revenue Statement of Cash Flow Exhibit A-11 Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities Statement of Changes in Partners' Equity Exhibit A-12 Appendix B Basic Concepts in Statistical Analysis Variation and Probability Table B-1a Figure B-1 Figure B-1a Measures of Central Tendency Arithmetic average (or mean) Table B-1b Median Table B-1c Mode Figure B-2a Figure B-2b Use of mean, median or mode Measures of Variability Standard Deviation and Shape Figure B-3a Figure B-3b Figure B-3c Distributions and Inference Areas Under the Curve Figure B-4 Inference from Data Samples Example Table B-2 Correlation, Regression and Prediction Figure B-5a Figure B-5b Figure B-5c Simple Regression
Library of Congress Subject Headings for this publication: Health facilities Accounting, Health facilities Costs Accounting, Health services administration, Managerial accounting, Health Services Administration economics, Costs and Cost Analysis methods, Decision Support Systems, Management