Good day, This is a Finance class for Health Services Administration major. Please view the attached assignment before you accept my proposal. I need someone who will no take shortcut but give me q
Notes - Chapter 6
Cost Classifications
Overview
Distinguish between direct and indirect costs
Understand why the difference is important to management
Understand the composition and purpose of responsibility centers
Distinguish between product and period costs
Distinction between Direct and Indirect Costs
Direct costs can be associated with a particular unit or department. The cost is directly attributable to that specific department. Whatever the manager is responsible for is known as a cost object. Direct costs can be traced to a specific unit or department whereas an indirect cost cannot be specifically associated with a particular cost object. Indirect costs, because they cannot be directly traced to a particular unit or department, must be allocated.
Direct costs are incurred for the sole benefit of a particular operating unit or department. If the answer to the following question is “yes”, then the cost is a direct cost. “If the operating unit (department) did not exist, would this cost not be in existence?”
Indirect costs are incurred for the overall operation and not just for one particular unit or department. If the answer to the following question is “yes”, then the cost is an indirect cost. “Must this cost be allocated in order to be assigned to the department?”
The allocation of indirect costs is integral in the completion of external cost reports. Government agencies require the review of both direct and indirect costs. While direct costs are easily traceable to the originating department, indirect costs for departments that don’t directly get involved in direct patient care, require a system to equitably allocation those costs across all revenue generating departments.
Review the attached exercise to get a better understanding of how to allocate costs.
