Robert Capettini, Chee W. Chow and Alan H. McNamee
Explains how activity‐based costing (ABC) can be applied to hospitals and outlines some previous research on its use and benefits. Reports a survey of US health administrators to…
Abstract
Explains how activity‐based costing (ABC) can be applied to hospitals and outlines some previous research on its use and benefits. Reports a survey of US health administrators to establish their view of the cost hierarchy and uses the information in a numerical example based on a radiology department to demonstrate the differences between using traditional costing methods and allocations based on the cost hierarchies. Shows that many survey respondents were dissatisfied with their traditional costing systems and argues that the use of ABC could not only improve pricing and product mix decisions but could also enhance profitability by facilitating the management of activities and elimination of waste at all levels of the cost hierarchy, i.e. continuous improvement of processes.