costacctg13_sm_ch05

The act ivit y areas differ in their indirect cost

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Unformatted text preview: lement ing the ABC system, Clayton can gain a more detailed understanding o f costs and cost drivers. This is valuable informat ion fro m a cost management perspective. The system can yield insight into the efficiencies with which various activit ies are performed. Clayton can then examine if redundant activit ies can be eliminated. Clayton can study trends and work toward improving the efficiency o f the activities. In addit io n, the ABC system will help Clayton determine which programs are the most costly to operate. This will be useful in making lo ng­run decis io ns as to which programs to offer or emphasize. The ABC system will also assist Clayton in setting prices for the programs that more accurately reflect the costs of each program. 2. The concern wit h using costs per patient­year as the rule to allocate resources among its programs is that it emphasizes “input” to the exclusion o f “outputs” or effect iveness of the programs. After­all, Clayton’s goal is to cure patients while controlling costs, not minimize costs per­patient year. The problem, of course, is measuring outputs. Unlike many m...
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