There are two types of business firms; goods selling firms or service providing or rendered firms.
Service costing is a type of operation costing which is used in service providing organizations.
In this service cost accounting, all the costs incurred in the production of a service are added together.
These costs are fixed costs, semi-variable costs and variable costs.
The sum of these costs is known as total cost.
The total cost is divided by the total units to find out per unit cost.
Service costing is followed by the service industries.
Generally, there are two types of services.
They are internal services and external services.
Internal services
Services provided by sections and departments to the production department are called internal service.
External services
Services provided to public utility are called external service; they are:
Transport services
Supply services
Welfare services
Municipal services
A hospital provides medical service to the community at large scale.
Hospital costing is charged from patients.
The hospital cost sheet includes the various costs incurred in the hospital.
Generally, there are two types of cost in hospital costing.
They are specific and common cost.
The specific costs are those costs which can be easily identified to a particulars cost center.
The common costs are incurred for logistic supports.
These costs can’t be allocated to a specific department.
For costing purpose, the hospital service can be divided into following categories:
Out Patients Department (OPD)
Wards: ward boys, ward girls etc
Medical Service Department (MSD): radio therapy, diagnostic, x-ray, pathology etc
General Service Department (GSD): power, heating, lighting, laundry, boiler house, administrative etc
Other Service Department (OSD): dispensary, transport etc
The following cost units can be used for determining hospital costing:
Departments |
Cost Units |
Outpatient department |
Per patient attendant |
Wards |
Per patient bed per day |
X-ray department |
Per 100 units or weighted point value |
Radio-therapy |
Per patient or per treatment or per course |
Pathology |
Per 100 units or per requested test |
Heating and lighting |
Per 1000 cubic feet |
Catering |
Per patient per day |
Laundry |
Per 100 articles laundered |
Administrative |
Suitable % on turn-over |
XYZ Hospital
(For one month or year)
Particulars |
Amount |
Standing/fixed cost: |
|
Salary and wages to staff (doctors, nurses, ward boys etc) |
xxxx |
Administrative charge |
xxxx |
Rent |
xxxx |
Repairs and maintenance |
xxxx |
Depreciation on fixed assets |
xxxx |
Interior decoration |
xxxx |
Sundry fixed charge |
xxxx |
Total A |
xxxxx |
Running/variable cost: |
|
Medicine/dispensary supply |
xxxx |
Laundry charge |
xxxx |
Lighting, heating, power, gas etc |
xxxx |
Cost of x-ray, oxygen |
xxxx |
Cost of laboratory |
xxxx |
Provision for food |
xxxx |
Doctor’s fee (patient basis) |
xxxx |
Other charge |
xxxx |
Total B |
xxxxx |
Total cost (A+B) |
xxxxx |
Cost per patient day = Total cost ÷ Total patient days |
$xxx |
For planning, following formulas can be used for hospital cost sheet:
Patient days or bed days |
= |
No. of beds x No. of days |
Bed occupancy |
= |
Potential patient day x Occupancy % ÷ 100 |
Average stay |
= |
Bed occupancy ÷ No. of patient |
Bed occupancy % |
= |
(No. of patient x Average stay) ÷ (No. of beds x No, of days) |
Cost per patient day |
= |
Total cost ÷ Total patient days |
Cost per in-patient day |
= |
Cost per in-patient ÷ Potential in-patent days |
Cost per out-patient day |
= |
Cost per out-patient ÷ No. of out-patient days |
Keep in Mind (KIM)
Repairs and maintenance in transport and hotel service is assumed variable cost. |
Repairs and maintenance in hospital service is assumed fixed cost. |
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 4A
Unity Life Hospital has provided following information on 31st December 2021:
Salary to staff |
$600,000 |
Interior decoration |
$12,000 |
Dispensary |
$330,000 |
Food to patients |
$300,000 average |
Administrative expenses |
$480,000 |
Rent per month |
$25,000 |
Sundry expenses fixed |
$25,000 |
Repairs and maintenance |
$20,000 per year |
Light, power, heating |
$50,000 |
Laundry expenses |
$30,000 per year average |
Cost of x-ray, oxygen, lab etc |
$40,000 |
|
|
Additional information:
(a) Medical equipment $60,00,000.
(b) Charge depreciation at 10% p.a.
(c) Fee to visitor doctor @ $100 per patient. During the year 250 patients have been examined by visiting doctor.
(d) Hospital has 40 beds; average 70% beds are occupied for 250 days and full bed occupied for rest days.
(e) 365 days in one year.
Required: (1) Fixed cost and variable cost; (2) Total operating cost; (3) Cost per patient per day;
(4) Charge to patient if 60% profit on cost
[Answer: (1) $20,37,000; and $ 7,75,000;
(2) $28,12,000; (3) $242; (4) $387]
SOLUTION
Given and working note:
Total bed days |
= No. of beds x % x days |
|
|
= 40 x 70% x 250 |
= 7,000 |
|
= 40 x 100% x 115 |
= 4,600 |
|
|
11,600 |
Operating Cost Sheet
Unity Life Hospital
(For one year)
Particulars |
Amount $ |
Fixed cost: |
|
Salary to staff (doctors, nurses, ward boys etc) |
6,00,000 |
Administrative charge |
4,80,000 |
Rent ($25,000 x 12) |
3,00,000 |
Repairs and maintenance |
20,000 |
Depreciation on fixed assets ($60,00,000@10%) |
6,00,000 |
Interior decoration |
12,000 |
Sundry expenses |
25,000 |
Total A |
20,37,000 |
Variable cost: |
|
Medicine/dispensary supply |
3,30,000 |
Laundry charge |
30,000 |
Lighting, heating, power, gas etc |
50,000 |
Cost of x-ray, oxygen, laboratory |
40,000 |
Provision for food |
3,00,000 |
Visiting doctor’s fee ($100 x 250) |
25,000 |
Total B |
7,75,000 |
Total operating cost (A+B) |
$28,12,000 |
Cost per patient day = Total cost ÷ Total patient days viz $28,12,000 ÷ 11,600 |
$242 |
Charge to patient if 50% profit on cost
Cost per patient per day 242
Add: Profit 60% on cost 145
$387
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 4B
The details incomes and expenses of Community Hospital are available.
The projected or estimated expenses for the year are (amount in $/₹/Rs):
The fee to visiting doctors (patient basis) |
352,000 |
Repair and maintenance |
74,000 |
Food supplied to patient (average) |
328,000 |
Cost of oxygen, x-ray, lab etc (average |
144,000 |
Laundry charges |
88,000 |
General administration charges |
550,000 |
Medicine expenses |
276,000 |
|
|
Additional information:
(a) The hospital has a provision of 50 beds.
(b) It has a provision of additional 10 beds to meet emergency need.
(c) The bed occupancy position is 100% for 150 days with addition of 10 emergency beds.
(d) 50 beds occupied only 80% for 215 days.
(e) Salary to permanent staffs of the hospital are:
2 Supervisory staff at a salary of $12,000 per month each
8 Nurses at a salary of $8,000 per month each
3 attending boys at a salary of $6,000 per month each
Required: (1) Total operating cost by classifying expenses into fixed and variable components;
(2) Cost per patient per day; (3) Profit per patient per day if per patient day average charge is $250
[Answer: (1) (18,96,000 + 11,88,000) = $30,84,000;
(2) $175.23; (3) $76.77]
SOLUTION:
Given and working note:
Total patient days:
Normal + emergency beds |
= (50+10) beds @ 100% x 150 days |
9,000 |
Normal beds |
= 50 beds @ 80% x 215 days |
8,600 |
|
Total |
17,600 |
Operating Cost Sheet
Community Hospital
(For one year)
Particulars |
Amount $ |
Fixed cost: |
|
Repairs and maintenance |
74,000 |
General administrative charge |
550,000 |
Supervisory salary (2 x $12,000 x 12 months) |
288,000 |
Nurses’ salary (8 x $8,000 x 12 months) |
768,000 |
Attendance boy’s salary (3 x $6,000 x 12 months) |
216,000 |
Total A |
18,96,000 |
Variable cost: |
|
Fee to visiting doctors |
352,000 |
Food supply to patients |
328,000 |
Laundry charges |
88,000 |
Medical expenses |
276,000 |
Cost of oxygen, x-ray, lab etc |
144,000 |
Total B |
11,88,000 |
Total operating cost (A+B) |
$30,84,000 |
Cost per patient day = Total cost ÷ Total patient days viz $30,84,000 ÷ 17,600 |
$175.23 |
Profit per patient per day
= Charge per patient – Cost per patient
= 250 – 175.23
= $76.77
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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2060 Modified
The details of the projected incomes and expenses of a newly established Public Health Centre are mentioned below:
The estimated expenses for the year are:
Expenses |
Amount |
|
Amount |
Total fee of two visiting doctor paid on the basis of patient visit |
352,000 |
Laundry charges |
88,000 |
Food supplied to patient |
528,000 |
Medicine expenses |
176,000 |
Cost of oxygen, x-ray etc (average) |
44,000 |
Repair and maintenance |
74,000 |
General administration charges |
150,000 |
|
|
The center has a provision of 50 beds. It has a provision of additional 10 beds to meet emergency need. On scrutiny of patient records the bed occupancy position is 100% for 150 days with addition of 10 emergency bed and only 80% for 215 days.
The permanent staffs attached to the center are:
2 Doctors at a salary of $40,000 per month each
2 Supervisory staff at a salary of $10,000 per month each
8 Nurses at a salary of $7,500 per month each
4 attending boys at a salary of $5,000 per month each
Required: (1) Total patient days; (2) Operating cost sheet by classifying expenses into fixed and variable components;
(3) Cost per patient per day; (4) Profit or loss per patient day if per patient day average charge is $500
[Answer: (1) Total patient days = 17,600;
(2) Fixed = $464,000; Variable = $11,88,000;Total = $16,52,000;
(3) Cost per patient per day = $202.95; (4) Profit = $297.05;
SOLUTION
Total patient days
= (50 normal + 10 emergency beds) x 150 days + (50 beds @ 80%) x 215 days
= 9,000 + 8,600
= 17,600
Operating cost sheet
Public Health Centre
(For one year)
Particulars |
Amount |
Standing/fixed cost: |
– |
Repairs and maintenance |
74,000 |
General administrative charge |
1,50,000 |
Doctors [2 x $40,000 x 12 months] |
9,60,000 |
Supervisory salary (2 x $10,000 x 12 months) |
2,40,000 |
Nurses’ salary (8 x $7,500 x 12 months) |
7,20,000 |
Attendance Boy’s salary (4 x $5,000 x 12 months) |
2,40,000 |
Total A |
23,84,000 |
Running/variable cost: |
– |
Fee for 2 visiting doctors |
3,52,000 |
Food supply to patients |
5,28,000 |
Laundry charges |
88,000 |
Medical expenses |
1,76,000 |
Cost of oxygen, x-ray etc |
44,000 |
Total B |
11,88,000 |
Total operating cost A+B |
$35,72,000 |
Total patient days |
17,600 |
Cost per patient per day = Total operating cost ÷ Total patient days |
$202.95 |
Profit
= Charge per patient – Cost per patient
= $500 – $202.95
= $297.05
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2062 Modified
City Heart Hospital has following extracted monthly expenses estimated for 6 air conditioned beds operated for 30 days in a month:
Dispensary (medicine) |
$36,000 |
Doctor’s salary |
$54,000 |
Food charges |
$45,000 |
Rent, lighting and other |
$41,400 |
Laundry and patient service |
$27,000 |
Salary to nurses and other man powers |
$20,700 |
Required: (1) Operating cost sheet showing fixed and variable charges; (2) Total charge on bill and cost per patient per day;
(3) Charge per patient if 10% profit on bill amount assuming 100% occupancy
[Answer: (1) Fixed = $116,100; Variable = $108,000; Total = $224,100;
(2) Profit = $24,900; Total charge on bill = $249,000;
(3) Cost per patient = $1383.33 per day;
SOLUTION:
Working note:
Total patients
= 6 beds @100% x 30 days
= 180
Operating Cost Sheet
City Heart Hospital
(For 1 month)
Particulars |
Amount |
Standing/fixed charges: |
|
Salary to doctors |
54,000 |
Rent, lighting and other |
41,400 |
Salary to nurses and other |
20,700 |
Total A |
116,100 |
Running/variable charges: |
|
Dispensary |
36,000 |
Food charge |
45,000 |
Laundry and patients service |
27,000 |
Total B |
108,000 |
Total operating cost (A+B) |
224,100 |
Add: Profit (40% on bill or service viz 224,100 x 10 ÷ (100 – 40) |
24,900 |
Total charge on bill |
$249,000 |
Total patient days |
180 |
Cost per patient = Total charge on bill ÷ Total patient days |
$1,383.33 |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2066 Modified
ABC Nursing Home has 125 bed capacities. The average occupancy of bed is 80% a year. Nursing home runs 365 days in a year. The estimated annual expenses are as follow:
Particulars |
Amount |
|
Amount |
Medicines |
876,000 |
Repair and maintenance |
87,600 |
Food provision to patients |
730,000 |
Laundry service expenses |
153,300 |
X–ray, oxygen and surgical expenses |
146,000 |
Overall administrative expenses |
219,000 |
The estimated salaries for medical team members are as follows:
12 staff nurses at a monthly salary of $6,000 per nurse.
3 doctors at monthly salaries of $30,000 per doctors
Required: (1) Operating cost sheet showing total fixed cost and variable cost; (2) Cost per patients per day (round off to rupees)
[Answer: (1) $22,50,600 and $19,05,300; total $41,55,900;
(2) Cost per patient per day = $113.86;
SOLUTION:
Given and working note:
Total patients days
= 125 beds @ 80% x 365 days
= 36,500
Operating Cost Sheet
ABC Nursing Home
(For 1 year)
Particulars |
Amount |
Standing/fixed charges: |
– |
Administrative expenses |
2,19,000 |
Repair and maintenance |
87,600 |
Salary to staff nurses [12 nurses x $6,000 x 12 months] |
8,64,000 |
Salary to doctors [3 doctors x $30,000 x 12 months] |
10,80,000 |
Total A |
22,50,600 |
Running/variable charges: |
– |
Medicines |
8,76,000 |
Food provision to patients |
7,30,000 |
X–ray, oxygen and surgical expenses |
1,46,000 |
Laundry service expenses |
1,53,300 |
Total B |
19,05,300 |
Total operating cost (A+B) |
$41,55,900 |
Total patients days |
36,500 |
Cost per patients per day |
$113.86 |
#####
Problems and Answers of Hospital Costing |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 4A
Dr Mahesh runs on Care Nursing Home. It is small but well facility nursing home. The following information is given on 31st December. Expenditures are annual basis.
Rent |
120,000 |
Salary: 2 doctors@ $30,000 per month |
|
2 supervisors @ $12,000 per month |
|
4 nurses @ $8,000 per month |
|
2 ward boys @ $6,000 per month |
|
Repairs and maintenance |
100,000 |
Food supply |
200,000 |
Laundry and cleaning materials |
150,000 |
Medicine |
100,000 |
Cost of oxygen, labour and x-ray etc |
50,000 |
Depreciation on equipment |
75,000 |
Other sundry expenses average |
25,000 |
Lighting, heating etc |
50,000 |
Patient day 15 beds for 150 days and 10 beds for 215 days.
Required: (1) Total operating cost sheet showing standing and running charge; (2) Total patient days
(3) Cost per patient day; (4) Charge to patient if profit is 40% on cost
[Answer: (1) 18,31,000 + 575,000 = 24,06,000;
(2) 4,400 P/days; (3) $546.82; (4) $765.55]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 4B
The annual expenditures of A Nursing Home are given below:
Dispensary expenses for the year $119,000
Expenses for food provisions $170,000
Cost of oxygen, pathology, X-ray etc $136,000
General administration expenses $212,500
Doctors’ salary and other services of patients $557,600
Occupancy position is 40 beds for 200 days.
Five staff nurses were engaged at a salary of $8,000 each per month.
The nursing home recovered $450 per day from each patient.
Required: (operating cost sheet): (1) Showing standing, running and total cost; (2) Cost per patient per day;
(3) Total revenue and annual profit earned
[Answers: (1) Standing = $12,50,100; Running = $425,000; Total = $16,751,000;
Cost per patient per day =$209.39;
Total revenue = $36,00,000; Profit = $19,24,900;
*Total patient days (40 beds x 200) = 8,000;
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 4C
Dr Rimal hired building to run City Nursing Home. The rent of the building is $60,000 per month. The building has 20 rooms and rests are general area. The lighting and heating expenses are $6,000 per month. The staff will consist of the following salaries:
2 Doctors@ 30,000 per month each
6 Nurses @ $6,000 per month each
4 General helpers @ $5,000 per month each
The monthly variable expenses for medicine, food charge, laundry charge, etc. come to $84,000. It is expected that the whole rooms will be occupied. The desire margin is fixed at 25% on bill amounts. 30 days in a month has been assumed.
Required: (a) Operating cost sheet showing fixed and variable charges; (b) Profit for the month and revenue;
(c) The room rate to be charged per day.
[Answer: Fixed = $176,000; Variable = $90,000; Total cost = $266,000;
Profit = $88,667; Revenue = $354,667; Room charge per day = $591;
*Total room days = (20 x 30 = 600)
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