Health care centers, are a complex form of Non profit organizations that are fast appearing on the corporate mapping of countries.
Costing and finance of a health centre is a bit more complex than that of the ordinary manufacturing concerns because of the novelty of the financial heads involved. In order to analyze the costing in a particular department of a health care centre, I chose the X-ray department as my area of study.
The X-ray department is of primary importance to the success of any health care centre as it not only provides immediate service to the admitted patients but is also a source of revenue for outpatient visits. The department in conclusion is a revenue earner as well as a facilitator or ancillary service for the health care centre.
Besides the department earns sufficient revenue to cover its expenses as most of the expenses are direct variable expenses (to be discussed later) and hence are covered by the price of an X-ray done.
Since health care centers are cost centered in their accounting approach it is quite inevitable that we examine the costs associated with this particular department. The costs associated with the X- ray department are: personnel expenses, the cost of X-ray films, other supplies, fixed expenses, equipment repairs and staff education.
When scrutinizing financial performance from a close angle, it is important to look into the nature of each of these costs so as to ascertain whether they have an impact regardless of activity levels or are they totally dependent on them.
Thus intensifying the analysis we see that of the above mentioned costs personnel expenses, cost of X-ray films and other supplies are variable, meaning that they vary directly with the activity levels or the number of X-rays done. On the contrary, fixed expenses and staff education are costs that have no relation with the level of activity and hence are fixed costs, meaning that they will accrue even if output is zero.
Another way of looking at the costs is by bifurcating them into direct and indirect costs. Keeping this classification in mind we can see that the personnel expenses and the cost of X-ray films are the only direct cost involved. The rest are indirect costs
Once aware of the costs involved, it is very important that the organization makes budgets for these expenses. The budget not only enables planning and appropriate organization of resources but in the event that the actual results vary from the estimates, it also enables control and monitoring of the activities being performed.
In realization of these advantages, the X-ray department also has a budget prepared. Such budgets that estimate expenses and revenues are termed as operational budgets. The operational expense budget of the X-ray department is fixed, meaning that it is based on activity levels based on historical data and statistical processes and does not allow for potential variation in activity levels that is offered by a flexible budget.