COSTING A HOSPITAL SERVICE PRODUCT: MARGINAL Vs ABSORPTION COSTING

Area of Science:

• Biomedical Engineering
• Health Economics
• Prosthetics and Orthotics

Background:

• Accurate costing of medical devices like prostheses is essential for financial management and resource allocation.
• Various costing methodologies exist, each potentially yielding different cost assessments.
• The specific application of costing methods to the production of below-knee patellar tendon bearing prostheses requires detailed examination.

Purpose of the Study:

• To compare the results of absorption costing and marginal costing for a below-knee patellar tendon bearing prosthesis.
• To evaluate the impact of treating labor costs as variable versus fixed within different costing methods.
• To determine the most effective costing approach for cost control in prosthesis manufacturing.

Main Methods:

• Application of absorption costing principles to prosthesis production costs.
• Application of marginal costing principles to prosthesis production costs.
• Analysis of labor cost treatment (variable vs. fixed) under both costing methods.

Main Results:

• Absorption costing and marginal costing yielded different cost figures for the prosthesis.
• The classification of labor costs (variable or fixed) significantly influenced the calculated costs.
• Marginal costing provided a more sensitive indicator for cost control compared to absorption costing alone.

Conclusions:

• Both absorption and marginal costing methods are valuable for understanding prosthesis costs.
• Marginal costing offers superior insights for cost control when compared to absorption costing alone.
• Integrating marginal costing alongside absorption costing is recommended for comprehensive financial oversight in prosthesis production.