Activity – Based Costing and Its Application in Turkish University Hospital

Activity – Based Costing and its Application in a Turkish University Hospital

The article focuses on a costing technique different from the traditional costing approach and it is called Activity-Based Costing. Through a Turkish University Hospital the technique is analyzed and compared to the traditional Costing approach and reveals both its disadvantages and disadvantages.

Activity-Based Costing was developed in the late 1980s as an alternative choice that could give the managers enough information and therefore, the right tools to increase cost effectiveness, maintain or enhance the quality of their products or service and generally maximize their resources.

Unlike other techniques which assign manufacturing overhead costs based on the number of direct labor hours which are necessary for the production of an item, the Activity-Based Costing method assigns manufacturing overhead costs based on the activities needed when a product is manufactured or a service is carried out.

By mentioning the overhead manufacturing costs we refer to both variable and fixed overhead costs. Fixed overhead manufacturing costs include costs like rent, salaries of non-production employees, insurance or property tax. On the other hand, variable manufacturing overhead costs include indirect labor like custodians, indirect materials such as manufacturing or service supplies, electricity, heating, equipment maintenance etc. The first group which refers to the fixed costs is irrelevant and unchanged by the productivity while the second group of costs which embodies the variable costs changes and is deeply affected by usage. These variable costs increase or decrease according to production volume.

The Activity-Based Costing is this method that assigns the above indirect costs to the products or services in a more accurate way. The idea is that activities such as purchasing materials, setting up machinery or inspecting finished products can be really costly....