This case study shows a typical situation in which management accounting can be helpful.

Read the case study now but only attempt the discussion points after you have finished studying the chapter.

The costing of all services delivered by NHS providers should be governed by the following principles: costs (and income) should be:

(a) calculated on a full absorption basis to identify the full cost of services delivered;

(b) allocated and apportioned accurately by maximising direct charging and where this is not possible using standard methods of apportionment; and

(c) matched to the services that generate them to avoid cross subsidisation. The costing process should also be transparent with a clear audit trail.

Where costs have not been directly attributed to the patient, costing pools should be constructed so that the costs included can be allocated or apportioned using the same method. Costing pools can be constructed in different ways dependent on the nature of the costs included in them. The manual gives examples. One absorption rate is calculated by dividing the combined fixed and semi-fixed costing pools for wards, theatres and outpatients by the appropriate activity units i.e. bed-days, theatre-hours or attendances.

Questions

1 What problems might be faced in apportioning overhead costs?
2 Why might it be important that the costing process should be transparent with a clear audit trail?