Cost Allocation - Assignment Example

Running head: cost allocation 25th September Question 5.10 a When a provider is primarily capitated, the best cost structure is fixed cost structure. This structure indicate that a fixed amount is paid to the provider for each person who is eligible to be served without considering the actual number of times or type of services provided within a particular period of time. One of the major importances of this structure is that it allows the health providers to control provision of health care. bIn the case a provider is reimbursed primarily by fee-for-service, the best cost structure is variable cost structure.

This is due to the variation in the prices for the services offered. Recently, due to emerging marketplaces, physicians have now turned to provision of different prices for their services moving from the capitation based methods that have been adopted for a long time. Question 6.3 aThe three primary methods of cost allocation include plant-wide rates, machine hours costing and activity based costing.b As one of the earlier methods of costing, pant-wide overhead rate costing entails allocating firm’s manufacturing overhead costs to production output.

Manufacturing overhead costs includes indirect cots that are incurred in the production process such as maintenance, electricity, repairs and depreciation among others (Gapenski, 2012). Machine hours costing entails allocating the costs depending with the hours a product takes to be produced in the production department. On the other hand, activity based costing entails assigning costs to the activities that are actually due to the overheads incurred. This is followed up by assigning the cost to the products that require the activities.

ReferencesGapenski, L. (2012). Healthcare finance: An introduction to accounting and financial management (5th Ed.). Chicago, IL: Health Administration Press