Distinguish Between Fixed and Variable Costs
Fixed costs are costs that are not affected by normal business operations. They do not change with the total volume of service units. For instance, salary and rent do not change but remain fixed since they do not depend on the service units. On the other hand, variable costs are flexible and change with changes in the volume of service units ( Campbell, Datar, Kulp & Narayanan, 2018) . This is because they are dependent on an organization’s operations.
What Is Meant by the "Relevant Range?”
Relevant range is a specific activity level bounded between the minimum and maximum levels. Therefore, revenues of costs outside the relevant range will possibly differ from the estimated amount. Conversely, revenues and expenses that fall within the range are more likely to be correct and valid. Fixed costs are fixed only within a relevant range ( Campbell, Datar, Kulp & Narayanan, 2018) . Organizations will often make assumptions that certain costs will remain fixed as long as others remain within the relevant range. Relevant range is mostly associated with budgeting. Variable costs would likely increase disproportionately over the relevant range of any volume or activity.
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Does the Volume of Patients Have an Impact on the Cost Per Patient?
The volume of patients has an impact on the costs per patient. This is because the costs per patient are variable and are dependable on the number of patients. For instance, if the number of patients who share fixed costs is high, the lower the average cost would be. This is because the higher the volume, the more the number of patients there are to share fixed costs ( Baker, Baker & Dworkin, 2017) . Even though the total fixed costs do not change, the patient costs per day change as the volume changes.
Do Health Care Organizations Prefer Higher Patient Volume? Why or Why Not?
Hospitals strive to increase their patient volume as a good operational and marketing strategy. An increase in patients will not only increase revenues but will also reduce the average cost per patient. Unless hospitals increase the cost of their services, patients will continue paying the same or lesser amount due to the increase in revenue to cater for the operational expenses ( Baker, Baker & Dworkin, 2017) . An increase in patient volume may be a good indicator of the services being offered are good and fulfilling with respect to quality and costs. However, some hospitals may not prefer high patient volumes due to the likelihood of having decreased quality service delivered to patients. High patient volumes may strain a health facility’s resources given the current shortage of health professionals across the country. For instance, a small private dental clinic that offers high costs services to their patients may prefer a low volume that would not strain their resources. After all, they are already making profits from the high-cost services offered to their high-end clients. At the same time, unless they are willing to expend their resources, taking in a high volume of patients would reduce the quality of services offered with respect to reduce patient-doctor time. However, a big hospital with the aim of serving a good number of people will benefit from high patient volumes that would not go beyond their capacity ( Baker, Baker & Dworkin, 2017) . In this case, depending on the objectives and mission, hospitals may either prefer or not want to have high patient volumes. Patient volumes should not exceed a certain limit that would result in decreased quality of services offered or adding to the already burnout of care providers.
Should Decisions to Add More Patients to an Existing Service Be Based on the Average Cost Per Patient?
The decisions to add more patients should not be based on either the hospital’s total or average costs. Instead, such decisions should be founded on the marginal cost analysis. This is because marginal costs reveal the changes from current conditions on a single unit ( Cleverley & Cleverley, 2017) . The patient margin will either mean adding or reducing volume by one patient. In other words, marginal costs and the costs of treating one more patient. Therefore, the analysis of the effect of the change would be precise and suitable for decision making ( Campbell, Datar, Kulp & Narayanan, 2018). Total and average costs would not effectively display the effect of volume change within a facility. Costs relevant to decision makers are those that change as a result of a decision. Relevant costing should consider costs before and after making decisions.
What Is the Goal of Cost Estimation?
Cost estimation seeks to assign a value to activities and assets with a particular interest in predicting the future. Despite there being numerous costs techniques in prediction, it remains difficult to accurately estimate costs. Previous costs may be used to predict future ones. However, certain factors in cost changes should be considered. Cost changes could result from an increase or decrease in patient volumes or other external elements such as inflation and technology ( Campbell, Datar, Kulp & Narayanan, 2018) . High rates of inflation would likely result in high costs while improved technology would cause a short-term increase in costs and a long-reduction of associated expenses. Therefore, costs need to be restated in constant dollars that would account for adjustments in inflation ( Campbell, Datar, Kulp & Narayanan, 2018) . In this case, costs could be predicted by either adjusting them for inflation or through a high-low cost estimation that factors in the experience of 2 days.
What Is the Difference Between Direct and Indirect Costs?
Direct costs are costs directly associated with primary activities such as the costs of medicine or paying nurses and doctors. On the other hand, indirect costs are those not affected by productivity ( Campbell, Datar, Kulp & Narayanan, 2018) . Even though they might part of the total hospital costs, they cannot be traced back to the final product or service rendered. For instance, building and maintenance costs are not directly linked with the provision of care to the patients.
References
Baker, J. J., Baker, R. W., & Dworkin, N. R. (2017). Health care finance . Jones & Bartlett Learning.
Campbell, D., Datar, S. M., Kulp, S. L., & Narayanan, V. G. (2018). Horngren's Cost Accounting: A Managerial Emphasis. Journal of Management Accounting Research , 27 , 39-65.
Cleverley, W. O., & Cleverley, J. O. (2017). Essentials of health care finance . Jones & Bartlett Learning.
