Ira Stone, the president of General Hospital, has a meeting with the Medical Economics Group (MEG). MEG is a consulting firm in the health services sector. It reports that General's billing operations are grossly inefficient. Its standard costing per bill is above 90% of the 130 hospitals MEG tracks in its benchmark.

Stone suspects the billing group deliberately "padded" its standard costs and standard amounts. Despite large investment in new information systems, the standards for 2013 were not below actual results for 2012. Stone does not want to institute a witch hunt, but he does want to eliminate the fat in General's cost structure.

In exercise

REQUIRED

1. How might General's billing operations group have "padded" its standard costs and standard amounts? Why might they do this padding?

2. What steps should Stone take to "reduce the fat" in the overhead costs of the billing operations at General Hospital?