The Department of Health publishes guidance to those recording the costs of health service activities. This is an extract from the Guidance manual.

Costing The principles for costing in the NHS are set out in chapter 2 of the NHS Costing Manual.

The fundamental principle is that reference costs should be produced using full absorption costing. This means that each reported unit cost will include the direct, indirect and overhead costs associated with providing that treatment/care.

The costing guidance states that as far as possible costs should be directly allocated to specialty level. Where this is not possible, appropriate apportionment methodology should be used. The costing manual provides guidance on appropriate apportionment methodology and the treatment of indirect and overhead costs. Given maintained audit involvement for 2005, it is vital that decisions and processes undertaken in apportioning costs are defensible.

Discussion points 

1 What problems might be faced in apportioning overhead costs?
2 Why might it be important that decisions and processes used in apportionment are defensible?