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A broader view of Costing process to be adapted in a hospital

1. Break down the revenue streams from different services

2. Break down the costs to different cost centers & map costs to activities

3. Match the revenues with costs using the activity links

4. Remove non cost items like discretionary costs, sunk costs

5. Remove non operating revenues like interest received, miscellaneous income

6. Add risk premium to cover inherent risks in the project

7. Identify and quantify cost drivers

8. Match cost pools with suitable cost drivers

9. Decide on suitable allocation keys and apportion costs to objects

10. Compare cost of each service group with revenues generated and arrive at profitability

Following cost models can be practiced depending on the size and policy

A. Variable Cost Approach

B. Total Cost Approach

C. Health Care Package Cost Approach

D. Activity Based Cost Approach