Abstract
Due to serious problems associated with activity-based costing (ABC), time-driven activity-based costing (TDABC) was recently suggested as a better alternative. TDABC is designed to enhance the objectivity of data collection and decrease time and cost as well. However, the accuracy of the allocated costs using TDABC has not been widely tested yet, particularly in the healthcare industry. The objective of this study is to review the differences between ABC and TDABC and apply both techniques to a university hospital in South Korea to evaluate the results of cost allocation of outpatient nursing activities in Pediatrics Department. It is shown that the allocated costs are not very different between the two techniques, which implies that TDABC can be effectively used to compute the cost of each patient accurately. The result of this study also demonstrates that, using TDABC, the visibility of unused resources will be improved at all levels of management in the hospital, and non-value added activities can be managed effectively using the information regarding the activity ratios of traditional ABC and TDABC. In addition, it is shown that the accurate cost report to each doctor can provide a motivation for doctors to improve their profitability. Keywords : Activity-based costing; Time-driven activity-based costing, health care industry DOI : 10.7176/RJFA/10-10-01 Publication date :May 31 st 2019
Highlights
The financial performance of a hospital is very sensitive to changes in the external environment, such as government regulations on healthcare, medical insurance policies, medical technology advancements, the political environment, and the economy in general
We assumed that the monthly average wage paid at Pediatrics Department was $300,000 in total.1 5.1 Costs of Outpatient Nursing Activities under Traditional activity-based costing (ABC) Outpatient nursing activities under the traditional ABC are listed in Figure 3, in addition to the definition of each activity and the cost driver as the allocation base for each activity
Because most previous studies had focused on the analyses of activity costs at the independent department level of hospitals, we conducted detailed cost analyses for each doctor to identify the unused capacity for each doctor to ensure that the results of this study could be used to provide top management with a strategic direction for budgeting and employee motivation
Summary
The financial performance of a hospital is very sensitive to changes in the external environment, such as government regulations on healthcare, medical insurance policies, medical technology advancements, the political environment, and the economy in general. As part of the internal environment, cost management has been recognized as one key financial factor for a hospital to become profitable and competitive in the healthcare industry. That is why many hospitals have been focusing on activity-based costing (ABC) since the early 2000 to improve their cost management systems. In contrast to the traditional system allocating overhead based on volume measures (e.g., direct labor hours and production volume), ABC allocates overhead costs based on the activities that cause the overhead costs to be incurred. Many non-volume measures are used as cost drivers, such as the number of inspections, the degree of complexities, and the number of purchases, to improve the accuracy of the product costs
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