Healthcare___5065823____Response to Questions.docx - Running head HEALTHCARE Healthcare Response to Questions Name Institution 1 HEALTHCARE 2 Healthcare

Healthcare___5065823____Response to Questions.docx -...

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Running head: HEALTHCARE 1 Healthcare: Response to Questions Name Institution
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HEALTHCARE 2 Healthcare: Response to Questions Direct and Indirect Costs and Examples from Outpatient Clinic Direct costs are the expenses that are incurred in connection to a specific object, product or project. The direct costs can be related to acquisition of equipment, raw materials and software, yet it can also include labor, especially when it is specifically linked to object acquisition (Gapenski, 2012). Many forms of direct costs are variables and increase with products or services being created or acquired. The examples of direct costs in an outpatient clinic include the costs linked to the acquisition of drugs, clinic equipment such as scanners, and the premise space. Indirect costs, on the other hand, are expenses that go beyond the basic expenses (direct costs), and which are important for maintaining the operation of an organization. In essence, the indirect costs are those that remain after the direct costs have been ascertained. They are sometimes regarded as the real costs incurred in running a business. In the outpatient clinic, the typical examples of indirect costs may include the expenses incurred in acquiring material needed for day-to-day operations, including office equipment rental, internet, pens and books. Although these items are important for the operation of the outpatient clinic, they cannot be directly linked to any specific service. The Primary Methods of Cost allocation There are three methods of cost allocation — direct method, step method and the reciprocal method. The direct method seeks to allocate costs to operating departments based on the allocation base shares. In other words, services used by other departments are not considered.
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