Variable costs are related directly to the amount of service that is delivered. These two costs make up the underlying cost structure of an organization. For example the costs of supplies used to draw blood in a laboratory, would be the variable costs, the costs to keep the laboratory open would be fixed costs. To understand the cost behaviors of the organization you have to figure out the relationship these costs have with the amount of services that they are delivering.
To manage your costs you want to make sure that you are bringing in enough volume that will cover your costs. Cost allocation is a very important part of cost measurement. It is a pricing process that within the organization where managers allocate the costs of all the departments. Within healthcare organizations the overhead costs, costs from patient services departments, and support costs have to be allocated. Due to this pricing and service offerings are based on the total costs in relation with each services.
If the allocations of overhead costs are allocated properly the organization is better able to make good decisions for the organization. Works Cited Evans III, J. H. (1998). Cost Management and Management Control in Healthcare Organizations: Research Opportunities. Behavioral Research in Accounting , 10, 78-103. Gapenski, L. (2012). Healthcare finance: An introduction to accounting and financial management (5th ed. ). Chicago: Health Administration Press.